BANCROFT  LIBRARY 
SUTRO.  JUNE  1939 


The  Central  Pacific 
R.  R.  Debt. 


in  2007  With  funding  from 


I  kr  J  ■  i  ■!  ■  ■  li^i  ■  I  ■  Min  n  3  ■  s  i  m  1  wz,  ■■■■■Hi 


CALIFORNIA'S  REMONSTRANCE 
AGAINST  REFUNDING  IT. 


ittpv/wvw.archive.org/details/centratpacif] 


INDKX.^ 


PAGE 


Reversal  of  established  congressional  policy  as  to  Pacific  roads ....     1 

False  pretences  to  Congress — Concealment  of  material  facts 2 

The  California  railroad  combine — How  composed— Its  continuity — 
The  Southern  Pacific  Company 4 

Irresponsibility  of  the  Company — What  property  it  owns.,  ..4  and    5 

The  railroad  situation  in  1870 — Commencement  of  the  Southern 
Pacific  road 6 

The  great  fraud  on  the  Central  road  by  which  it  was  made  to  fur- 
nish means  to  build  the  Southern 7 

Other  frauds  in  Central  Pacific  management 10 

The  secret  dividends  of  1895-1896,  and  how  brought  about 11 

Proofs  of  the  foregoing,  viz:  Editorial  of  the  "  Economist^''  (London), 
March  23d,  1895 12 

Mr.  Huntington's  reply — Confessing — From  ^''  Economist  (London), 
April  20th,  1895 12 

Mr.  Crocker's  confession 14 

Other  assets  of  the  Central  Pacific  Company 15 

Other  objections  to  the  pending  bill  creating  a  federal  corporation 
of  unlimited  powers,  in  violation  of  the  rights  of  the  State  and 
the  courtesy  due  to  it  from  the  general  government K) 

Instances  of  gross  abuses  in  transportation  which  have  rendered 
the  Central  Pacific  management  odious  and  detested 17 

Imposition  of  prohibitory  duties  on  Eastern  goods  imported  into 
California 17 

Establishment  of  an  illegal  special  contract  system  with  barbarous 
penalties 17 

Collusive  suits  and  vexatious  litigations  with  the  State  over  a  sys- 
tem of  taxation  adopted  at  their  own  suggestion — Deceptions 
practised  on  the  courts,  etc 1 7 

Defrauding  the  government  and  the  public  by  failure  to  build  the 
road  contracted  for — The  contracts  entire 19 

The  Central  Pacific  can  be  reorganized  on  safe  and  solvent  basis  b}^ 
calling  in  the  sums  due  it  from  solvent  debtors 21 

Resume'  of  grounds  of  opposition  to  Refunding  Bill 22 

Appendix — Article  from  '^Nation,'"  August  11th,  1881 25 

Article  from  "  Nation;'  December  5th,  1881 2S 


BANCROFT  L!Si?ARY  ^vi  U 

SUTRO.  JUNE  1939  " 


dS'&'is 


'^M'a. 


THE  CENTRAL  PACIFIC  R.  R.  DEBT. 


CALIFORNIA'S  REMONSTRANCE 

AGAINST  REFUNDING  IT. 


To  the  Senate  and  House  of  Representatives 
of  the  United  States: 

Gentlemen: — In  again  appearing  in  opposition  to  the  passage  by 
Congress  of  a  measure  for  refunding  or  extending  time  on  the  debt  of 
the  Central  Pacific  Company,  we  beg  to  call  to  your  recollection  the 
many  objections  expressed  in  our  memorial  on  behalf  of  the  people  of 
this  State  presented  to  the  last  session  of  Congress  as  well  as  to  the 
following  additional  facts  and  considerations,  some  of  which  have  been 
developed  since  that  memorial  was  presented  and  others  have  been 
suggested  by  the  course  the  discussion  of  the  proposal  has  taken. 

Reversal  of  Established  Congressional  Policy  as  to  Pacific  Roads. 

I.  In  granting  aid  to  the  Texas  Pacific  road  and  to  the  Southern 
Pacific  Railroad  it  was  undoubtedly  the  intention  of  Congress  to 
create  a  southern  route  across  the  continent  which  would  constitute 
a  rival  to  the  central  route,  on  that  side,  as  the  Northern  Pacific 
road  was  designed  to  do  on  the  North.  The  purpose  was  to  give  to 
the  people  of  the  whole  country  the  advantage  of  competition  in  over- 
land transportation.  Without  accurate  knowledge  of  the  extent  to 
which  extortion  in  charges  was  practised  on  the  Central  line  (since 
brought  to  light  by  the  Pacific  Railroad  Commission),  it  was  common 
knowledge  that  the  charges  were  excessively  high,  and  the  creation 
and  maintenance  of  competing  roads  were  recognized  as  necessary. 
Therefore  to  insure  their  construction  and  maintenance  aid  was  liber- 
ally granted  by  Congress.  Independent  of  its  enormous  subvention 
in  bonds,  the  Central  Pacific  Company  received  as  a  donation  of  land 
aggregating,  after  all  deductions,  8,000,000  acres,  worth  at  minimum 
government  price,  $20,000,000,  but  estimated  at  more  by  themselves; 
their  sales  down  to  December  31st,  1882,  having  produced  an  average 
price  of  $4.85  per  acre.  (Vid.  Report  of  December,  1882,  pp.  57,  59.) 
The  Southern  Pacific  land  grant  in  California  amounted  to  10,445,227 
acres,  worth  at  minimum  government  price  $26,113,175,  but  of  which 


[2] 

their  own  report  of  December  31st,  1882,  says  "  a  very  large  portion  of 
them  is  choice  agricultural  and  timber  land  and  will  command  a  much 
higher  price."  In  fact  the  subsequent  table  in  same  report  shows  the 
average  price  so  far  to  have  been  $4.38  per  acre.  (An.  report  Decem- 
ber 31st,  1882,  pp.  43,  44,  51.)  This  beneficent  and  well  considered 
policy  of  Congress  in  pursuit  of  which  it  has  so  bountifully  endowed 
these  two  companies  has  been  deliberately  and  formally  set  at  naught 
by  the  managers,  who  to  prevent  the  competition  designed  by  Congress, 
have  leased  the  Central  Pacific  road  for  ninety-nine  years,  from  April 
1st,  1885,  to  the  owners  of  the  whole  stock  of  the  Southern  Pacific  Rail- 
road, and  both  roads  are  thus  put  into  common  management.  The 
proposed  refunding  act  distinctly  confirms  this  lease,  so  far  as  Congress 
has  the  power  to  do  so,  and  threatens  penalties  against  the  abused 
stockholders  of  the  company  should  they  seek  to  avoid  it  as  a  fraud  on 
them!  The  chief  objection  to  it  on  our  part  is  its  direct  hostility  to 
the  deliberate  and  beneficial  policy  of  Congress,  which  it  distinctly  re- 
verses in  the  interest  of  private  parties;  a  minor  one,  not  however  with- 
out weight  is  that  it  aims  to  fasten  on  the  stockholders  of  the  company 
a  lease  by  their  trustees  in  fraud  of  their  rights,  which  they  are  now 
preparing  to  vindicate,  by  legal  proceedings.  This  is  unjust  to  them. 
The  method  b}^  which  the  Central  Pacific  managers  retained  control 
of  the  company  after  parting  with  all  their  interest  will  be  shown 
further  on;  what  is  important  here  is  that  the  real  parties  in  interest 
have  at  last  awakened  to  the  wrong  done  them,  and  are  preparing  to 
claim  their  rights,  and  return  to  the  policy  of  an  independent  exist- 
ence and  operation  designed  by  Congress;  and  this  is  the  moment  at 
which  it  is  proposed  to  enact,  as  in  Section  19  of  the  pending  bill,  S.  B. 
No.  2894, 54th  Congress,  1st  Session,  that  if  this  fraudulent  and  infamous 
lease  be  annulled  or  cancelled,  even  by  decree  of  a  Court,  that  act  shall 
entail  the  immediate  maturity  of  the  whole  debt  due  the  United  States 
at  the  option  of  the  President!  The  government  is  thus  made  to  cast  the 
sword  and  belt  of  Brennus  into  the  scale  wherein  the  defrauded  stock- 
holders are  weighing  the  cost  of  obtaining  justice  against  their  dis- 
honest trustees  !  Surely  Congress  will  shrink  from  enacting  a  law  to 
forbid  people  who  have  been  defrauded  from  seeking  redress  under 
such  a  heavy  penalty  I 

False  Pretences  to  Congress-  Concealment  of  Material  Facts. 

II.  The  indulgence  and  extension  of  time  here  involved  are  asked 
under  false  pretences  the  disengenuousness  of  which  should  forbid 
entertaining  the  proposal.  The  demand  for  time  to  pay  is  based  on 
the  suggestion  of  poverty  on  the  part  of  the  debtor,  whose  earning 
power  it  is  said  cannot  reach  beyond  the  pittance  proposed  to  be  re- 
quired by  the  pending  bill,  but  the  pretense  of  poverty  is  entirely 
false.  The  Central  Pacific  Railroad  Company  is  paying  dividends  to 
its  shareholders  to-day,  with  promise  to  double  them  as  soon  as  the  bill 
passes,  and  it  has  very  large  means,  money  claims,  which  should  be 
called  in  and  applied  to  the  payment  of  its  debts.  Some  of  these  are 
as  follows: 

I.  Claims  against  its  former  directors  and  managers  amounting  to 
many  millions,  for  misappropriation  of  its  funds  and  property  by 
means  of  fraudulent  contracts  and  dealings  with  themselves  through 
the  disguise  of  construction  companies;  the  Contract  and  Finance 
Company,  the  Western  Development  Company,  etc. 


[3] 

IL  Claims  of  great  magnitude  against  the  Southern  Pacific  Rail- 
road Company,  its  successful  rival  in  business,  to  be  explained  below. 

III.  Claims  against  its  directors  for  fraudulent  mismanagement 
whereby  its  revenues  have  been  impaired  for  their  own  benefit. 

Of  these  claims  in  their  order.  The  proof  of  the  dividends  paid, 
afterwards. 

I.  Claims  against  its  directors  for  misappropriation  of  funds,  etc. 
The  report  of  the  Pacific  Railroad  Commission  shows  that  the  assets 
and  resources  of  the  Central  Pacific  Railroad  Company  were  diverted 
and  appropriated  to  their  own  private  gain  and  in  fraud  of  the  com- 
pany by  the  original  directors,  Huntington,  Stanford,  Crocker  and 
Hopkins,  through  the  instrumentality  of  construction  companies  and 
gives  approximately  the  amount  stolen.  These  proceedings  are  now 
in  their  outline  familiar  to  all  well  informed  persons,  and  altogether 
the  frauds  practised  in  the  construction  of  the  Pacific  railroads  are 
generally  regarded  as  the  most  disgraceful  public  scandal  in  the 
annals  of  the  country.  No  public  man  has  ever  dared  to  defend 
them,  though  several  were  shown  to  have  profited  by  them,  and  were 
relegated  by  public  opinion  to  merited  obscurity;  they  have  never 
received  even  tacit  condonation  from  Congress,  and  to  pardon  them 
now,  by  extending  the  time  for  payment,  as  if  the  liability  were  an 
ordinary  debt,  would  be  to  affirm  by  act  of  Congress  that  in  the 
judgment  of  that  body  the  acts  in  question  came  up  to  the  standard 
of  morals  properly  applicable  to  the  disbursement  of  public  funds,  in- 
trusted, in  a  moment  of  great  public  peril,  to  the  honor  of  private 
citizens.  Better  by  far  lose  the  whole  amount  of  the  debt  than  affirm 
such  doctrine.  But  the  debt  need  not  be  lost;  every  dollar  of  profit 
gained  by  these  dishonest  directors  can  be  yet  recovered  by  the  com- 
pany or  by  a  receiver  appointed  in  a  foreclosure  representing  the 
interests  of  creditors  and  stockholders.  The  company  has  never 
brought  such  suit  because  its  management  has  ever  been  controlled  by 
the  perpetrators  of  the  frauds  or  those  deriving  from  them.  Individ- 
ual stockholders  have  from  time  to  time  sued  on  behalf  of  the  corpor- 
ation, but  though  vigorously  defended  not  one  of  them  has  been 
allowed  to  proceed  to  judgment.  They  have  all  been  compromised  for 
amounts  and  on  terms  which  implicitely  admit  guilt.  "  The  allega- 
tions,^^ say  the  friendly  majority  of  the  Pacific  railroad  commission  in 
their  report  (page  75)  "  contained  in  these  complaints  were  such  as  would 
"  compel  men  of  honor-,  if  those  allegations  were  false,  to  defend  themselves 
^^at  any  cost.  It  appears  from  the  evidence  that  all  these  suits  were 
"  settled,  and  that  the  stocks  owned  by  the  plaintiffs  were  bought  at  rates 
^^  varying  from  rf  400.00  a  share  to  >$  1,000.00  a  shared  None  of  these 
settlements  however  condone  the  wrongs  done  the  company,  and  no 
statute  of  limitation  has  barred  its  right.  That  right  is  an  asset  of 
great  value,  for  the  responsibility  of  Mr.  Huntington,  individually, 
and  of  the  Crocker  estate,  are  undoubted.  The  latter  has  been  fortu- 
nately kept  undivided  by  transfer  to  a  corporation  composed  of  the 
heirs,  and  is  distinctly  recognisable  in  present  hands. 

II.  and  HI.  Claims  against  the  Southern  Pacific  Railroad  Com- 
pany, and  Claims  against  its  own  directors  for  fraudulent  misman- 
agement of  its  business.  These  for  brevity  will  be  treated  together, 
but  to  do  so  requires  some  preliminary  explanations. 


[  4  ] 

The  California  Railroad  Combine— How  Composed— Its  Conti- 
nuity—The Southern  Pacific  Company. 

It  must  then  be  premised  that  the  management  of  the  Central  Pacific 
road  has  been  substantially  unchanged  from  its  organization  to  the 
present  day.  When  the  personnel  has  varied  the  transfer  has  been  from 
brother  to  brother,  from  father  to  son,  from  uncle  to  nephew,  or  from 
deceased  to  surviving  partners.  There  has  been  an  absolute  continu- 
ity of  design,  system,  policy,  methods  and  practices  from  the  beginning 
so  that  we  may  speak  of  the  management  at  all  times  as  continuous. 
The  form  of  the  combine  remained  unchanged  down  to  1884,  when  it 
took  a  corporate  shape,  as  to  the  "Southern  Pacific  Company." 

The  original  Central  Pacific  combination  consisted  of  Collis  P.  Hunt- 
ington, Leland  Stanford,  Mark  Hopkins,  Charles  Crocker  and  E.  B. 
Crocker.  They  undertook  the  building  and  financing  of  the  Central 
Pacific  road  and  shared  the  profits  equally.  Whether  they  were  tech- 
nically partners  is  disputed  and  not  here  material.  The  last  named 
associate  died  first,  and  as  was  natural  the  survivors  bought  up  his 
interest.  Mark  Hopkins  died  next,  intestate  and  childless;  his  widow 
retained  his  interest  and  took  his  place.  The  others  were  now  growing 
old  and  to  husband  their  energies  the  survivors  sought  a  younger  as- 
sociate to  share  their  labors.  They  sold  an  interest  of  one-fifth  to  David 
D.  Colton  and  took  him  in.  By  this  time  they  had  branched  out  into 
extensions  of  the  Central  Pacific  road,  northward  up  the  Sacramento 
Valley,  and  southward  through  that  of  the  San  Joaquin,  and  building 
the  Southern  Pacific  road.  Colton  was  very  active  in  the  management. 
He  died  however,  quite  suddenly  from  an  accident,  and  as  he  had  not 
been  long  enough  in  the  concern  to  become  an  essential  part  of  it;  and 
left  no  representative  who  could  contribute  the  services  that  he  had 
rendered,  it  became  necessary  to  buy  his  interest.  This  was  done,  quite 
promptly,  but  in  a  manner  and  under  circumstances,  that  led  to  a 
subsequent  action  by  Mrs.  Colton  to  set  aside  the  sale,  and  have  an 
account  taken  of  the  affairs  of  the  concern.  In  the  course  of  this  trial, 
which  was  contested  with  great  obstinacy,  was  brought  to  light  the  corre- 
spondence between  Huntington  and  his  associates  which  has  since 
become  so  famous  (or  infamous).  It  forms  a  part  of  the  transcript  on 
appeal. 

The  Colton  incident  drew  the  attention  of  the  surviving  parties  to  the 
danger  that  menaced  them,  as  their  numbers  continued  to  grow  less. 
If  each  successive  death  were  to  involve  a  purchase  of  the  deceased's 
interest  by  the  survivors,  what  would  be  the  lot  of  the  longest  liver? 
Mr.  Huntington  is  credited  with  the  invention  of  the  idea  of  obtaining 
a  charter  of  incorporation  for  themselves;  surrendering  to  such  cor- 
poration the  shares  of  stock  held  by  the  individuals  in  the  various 
railroad  companies  they  had  formed,  and  taking,  in  exchange  for 
it,  stock  in  the  new  company.  This  plan  was  adopted,  and  a  legisla- 
tive charter  was  obtained  from  the  State  of  Kentucky  for  the  Southern 
Pacific  Company.  The  original  proposal  was  to  have  the  stock  of 
the  new  company  held  equally  by  the  four  remaining  associates, 
viz:  one-quarter  each  by  Stanford,  Crocker,  Huntington  and  Mrs. 
Hopkins;  but  at  the  last  moment  Mr.  Huntington  recurred  to  the 
annoyance  they  had  previously  experienced  from  their  inability  ta 
deny  that  the  Southern  Pacific  and  Central  Pacific  Companies  were  in 
fact  composed  of  the  same  individuals  (referred  to  in  his  letters  to  Col- 
ton), and  suggested  taking  in  an  additional  associate,  and  selling  him  a 


BANCr>OFT  LIBRARY 
SUTRO.  JUNE  1939 


[5] 

small  interest.  This  was  acceded  to  and  a  fifth  shareholder  taken  in; 
but  he  presently  tired  of  his  purchase  and  sold  his  shares  to  Hunting- 
ton, or  fell  under  his  control,  and  thus  it  came  about  that  Mr.  Hunt- 
ington united  with  any  one  of  the  other  parties  controls  the  action  of 
the  Southern  Pacific  Company.  Mrs.  Hopkins  having  remarried  in 
her  old  age,  on  her  death  left  a  will  in  favor  of  her  youthful  husband, 
a  Mr.  Searles.  This  gentleman,  having  other  tastes,  has  not  taken 
personal  part  in  the  railroad  management,  and  thus  Mr.  Huntington, 
by  his  acquiescent  cooperation,  has  come  to  wield  the  whole  power  of 
the  Southern  Pacific  Company,  and  his  single  vfiW  reverses  the  delib- 
erate policy  of  Congress  in  pursuance  of  which  it  has  granted  away 
over  a  hundred  million  acres  of  the  public  domain,  10,445,227  thereof 
to  the  Southern  Pacific  Railroad  Company  of  which  he  then  was  and 
practically  still  remains  the  controlling  owner.  Being  a  Kentucky  cor- 
poration, the  Southern  Pacific  Company  organization  is  not  governed  by 
the  laws  of  this  State  wherein  its  business  lies,  and  the  proportional 
representation  of  stockholders  in  the  direction  allowed  by  California  law 
has  no  place.  The  other  parties  in  interest  are  therefore  indebted  to 
the  consideration  of  Mr.  Huntington  for  their  positions  in  the  board, 
and  must  dance  to  such  music  as  he  sees  fit  to  play.  He  is  the  presi- 
dent of  the  company,  and  is  no  ^'King  LogP''  He  controls  everything, 
and  is  to  all  intents  and  purposes  the  company. 

What  Property  The  Southern  Pacific  Company  Owns. 

It  never  had  any  cash  capital.  The  stocks  held  by  the  organizers 
were  transferred  to  it,  at  some  agreed  prices,  bearing  no  relation  to 
their  actual  value  and  its  stock  issued  in  payment  therefor.  Thus  it 
owns  the  stocks  of  all  the  other  railroad  and  transportation  companies 
which  its  managers  have  from  time  to  time  built  or  purchased,  except 
the  Central  Pacific,  and  nothing  more.  A  few  shares  of  each  are 
placed  in  the  names  of  dummies  in  their  employ,  or  under  their  con- 
trol, to  qualify  them  as  directors  of  the  various  companies,  and  thus 
the  doings  of  these  corporations  are  dictated  and  controlled  by  the 
single  will  which  controls  the  Southern  Pacific  Company.  As  every 
road  whereof  it  owns  the  stock  is  mortgaged  for  far  beyond  its  value 
or  cost,  the  value  of  the  stocks  which  constitute  its  whole  capital  is 
obviously  but  nominal.  Whenever  additional  property  is  acquired,  it 
is  at  once  duly  mortgaged  for  all  it  will  possibly  bear,  and  subject  to 
such  mortgage  transferred  to  or  held  by  the  Southern  Pacific  Company. 

The  Southern  Pacific  Company  chooses  the  directors  and  controls 
the  management  of  all  the.se  roads  of  which  it  is  the  lessee-  besides 
owning  the  stock.  It  finances  them  all,  gets  all  their  cash  into  a  com- 
mon purse,  manages  their  sinking  funds,  lending  the  money  of  one  to 
the  other,  and  that  of  the  other  to  a  third,  and  so  round  the  circle  till 
it  comes  back  to  where  it  started,  and  the  whole  thing  becomes  a  mere 
matter  of  book-keeping,  needing  no  unnecessary  and  inconvenient 
payments  of  cash.  The  lease  of  the  various  roads  other  than  the 
Central  Pacific  is  styled  the  ^^ Omnibus  Lease.^^  It  has  been  lauded  as 
a  method  of  insuring  unity  and  economy  of  management,  etc.  The 
principal  feature  however,  which  a  studious  reader  will  be  apt  to 
recognize  in  it,  is  a  clause,  which  reversing  the  old  rule  or  reserving  a 
rent  to  be  paid  by  the  lessee  to  the  lessor,  provides  that  the  lessees  shall 
have  ten  per  cent  of  the  procedes  of  the  business  for  managing  and  taking 
care  of  the  property  of  the  company  whereof  they  own  the  whole  stock  ! 
While  the  lessees  continue  to  own  all  the  stock,  this  may  be  harmless; 


[  6] 


n 


but  whenever  they  shall  put  any  of  those  stocks  on  the  market  and 
succeed  in  making  sales  of  them,  the  purchasers  may  be  expected 
to  discover  its  radical  dishonesty  when  they  find  a  portion  of  the 
stockholders  in  their  capacity  of  lessees,  absorbing  ten  per  cent  of  the 
proceeds  of  the  business  before  leaving  a  cent  for  them. 

Members  of  Congress  should  also  be  informed  that  the  Pacific 
Improvement  Company  (commonly  written  P.  I.  Co.)  is  another  of  the 
Protean  corporate  forms  under  which  these  railroad  managers  mask 
their  operations,  just  as  the  Western  Development  Company  was 
before  it,  and  the  Contract  and  Finance  Company  before  it  in  turn; 
continually  changing  in  name,  ever  the  same  in  fact. 

Returning  from  this  necessary  introduction  of -the  characters  we  come 
to  the  gigantic  fraud  on  the  Central  Pacific  Company,  perpetrated  by 
its  managers  in  1880.  It  consisted  essentially  in  using  the  credit  and 
means  of  that  company  to  build,  for  their  own  benefit,  the  Southern 
Pacific  road  as  a  rival  line,  designed  and  calculated  to  destroy  the 
value  of  the  Central  !     The  process  of  this  was  as  follows: 

The  Situation  in  1870.    Commenceinjent  of  the  S.  P.  Road. 

What  is  now  called  the  Southern  Pacific  Railroad  began  with  the 
construction  of  a  road  from  San  Francisco,  80  miles  south  to  Gilroy. 
It  was  completed  in  1869.  Mr.  Huntington  intimates — in  fact  asserts 
— that  it  was  done  by  his  Southern  Pacific  Railroad  Company;  but 
this  is  one  of  those  curious  lapses  of  memory,  to  which  some  persons 
are  subject,  by  which  they  not  only  forget  what  occurred,  but  remem- 
ber exactly  what  did  not!  The  fact  is  neither  he  nor  any  compan}^  he 
was  connected  with  built  a  single  mile  of  it.  It  was  built  by  Peter 
Donahue,  Henry  M.  Newhall  and  Charles  B.  Polhemus,  (the  last  named 
is  still  living)  under  the  corporate  name  of  the  San  Francisco  and  San 
Jose  Railroad  Company,  and  that  of  the  Santa  Clara  and  Pajaro 
Valley  Railroad  Company;  to  build  and  equip  it  cost  about  $1,300,000 
and  it  was  in  use  as  a  local  road.  In  1865  a  ompany  was  organized 
in  San  Francisco,  by  eight  or  ten  gentlemen, — William  T.  Coleman, 
Timothy  Guy  Phelps,  Charles  N.  Fox  and  others,  under  the  name  of 
"  The  Southern  Pacific  Railroad  Company,"  but  it  had  no  actual  capi- 
tal, and  built  no  road;  was  in  fact  a  mere  paper  organization.  There 
was  another  company  organized  in  1870  called  the  California  Southern 
Railroad  Company,  which  was  in  similar  plight.  By  this  time  some 
progress  had  been  made  in  selling  the  shares  of  the  Central  Pacific 
Company,  though  Mr.  Huntington  and  his  associates  continued  to 
retain  its  management.  They  decided  on  building  another  road  which 
by  its  more  advantageous  location,  more  favorable  grades,  and  prefer- 
able approach  to  the  city  of  San  Francisco  direct,  would  be  able  to 
successfully  rival  it  in  business.  With  this  view  they  purchased  from 
Messrs.  Newhall,  Donahue  and  Polhemus,  the  stock  of  the  two  roads 
first  above  mentioned  (from  San  Francisco  to  Gilroy)  and  from  the 
organizers  of  the  second  two  companies  named,  their  good  will  and 
corporate  names,  and  in  October  1870,  consolidated  the  four  companies 
into  one  under  the  name  of  the  ^'Southern  Pacific  Railroad  Company.'^ 
The  route  designated  was  from  San  Francisco  southwards  through  the 
Santa  Clara  and  Salinas  Valleys,  across  the  coast  range  of  mountains 
into  the  San  Joaquin,  and  up  that  valley,  and  over  the  Tehachapi 
Pass  to  the  Colorado  River.  Its  nominal  capital  was  $30,000,000. 
Its  actual  capital  the  road  from  San  Francisco  to  Gilroy,  and  its 
equipment,  nothing  more,  and  that  mortgaged  for  $968,000. 


[7] 

Meantime  the  Central  Pacific  Company  had  constructed  a  branch  of 
its  road  extending  southwards  from  Stockton  up  the  San  Joaquin  Val- 
ley, some  150  miles,  to  a  place  called  Goshen,  a  mere  hamlet — but  the 
point  at  which  the  projected  Southern  Pacific  road  would  intersect  the 
Central.  During  the  winter  months  succeeding  the  purchases  above 
mentioned,  the  parties  succeeded  in  procuring  the  insertion  in  the  Act 
of  Congress  of  March,  1871,  of  a  land  grant  in  favor  of  the  Southern 
Pacific  Railroad  Company,  and  soon  thereafter  began  to  build  from 
Goshen  onwards  towards  the  Colorado  river  and  the  State  line. 

There  was  no  bona  fide  subscription  to  the  stock  of  the  Southern 
Pacific  Railroad  Company,  nor  any  contribution  of  cash  capital.  The 
whole  business  was  managed  through  the  instrumentality  of  a  con- 
struction company  composed  of  the  managers  of  the  road  itself,  who 
were  also  the  trustees  and  managers  of  the  Central  Pacific.  This  con- 
struction company  contracted  with  the  Southern  Pacific  Railroad 
Company  to  build  and  equip  its  road  for  all  the  stock  of  the  company 
and  all  its  bonds.  The  original  intention  was  to  issue  $40,000  of  stock 
and  an  equal  amount  of  bonds  for  every  mile  of  road  built,  but  this 
excessive  capitalization  seems  to  have  been  afterwards  reconsidered 
and  made  somewhat  less. 

They  began  building  the  S.  P.  road  from  Goshen,  above  named,, 
southwards,  in  1872,  and  in  that  year  constructed,  say,  21  miles.  In 
1873  they  built  about  20  more,  and  in  1874  some  34  additional,  making 
75  in  all  in  that  valley;  during  the  same  period  they  added  some  81 
miles  to  the  length  of  the  road  from  San  Francisco  to  Gilroy.  This 
was  the  situation  at  the  commencement  of  1875. 

The  Fraud. 

In  July,  1875,  the  Southern  Pacific  Railroad  Company  executed  a 
mortgage  for  $46,000,000  to  trustees,  dated  April  1st  of  that  year,  cov- 
ering the  whole  of  their  road  existing  and  contemplated  (being,  as 
described,  1150  miles  in  length,  or  at  the  rate  of  $40,000  per  mile  of 
road);  a  large  amount  of  these  bonds  was  issued  to  the  construction 
company,  and  the  problem  before  Mr.  Huntington  and  his  associates 
was  to  sell  these  bonds,  and,  until  sales  could  be  effected,  to  give  them 
an  apparent  or  prospective  value,  which  might  meantime  render  them 
available  as  collateral  security. 

People  investing  in  railroad  bonds  naturally  look  at  the  earnings  of 
the  road,  as  a  guide  to  estimate  values;  and  as  the  San  Joaquin  Val- 
ley south  of  Goshen  was  then  quite  unsettled,  and  could  furnish 
neither  freight  nor  passengers  to  the  new  road,  they  determined  to 
make  a  show  of  business  over  it  by  using  the  credit  of  the  Central 
Pacific  Company.  For  this  purpose  they  made  a  lease  dated  Sep- 
tember 1st,  1876,  to  the  latter  company  of  the  branch  of  the  Southern 
Pacific  railroad  extending  from  Goshen  southward  to  the  Colorado 
River,  constructed  and  to  he  constructed,  for  six  thousand  dollars  per 
annum,  for  every  mile  thereof  built  and  ready  for  operation.  The  rent 
would  thus  increase  by  six  thousand  per  annum  with  every  additional 
mile  of  road  built.  From  this  rent,  hoioever,  the  lessees  were  permitted 
to  deduct  $3,000  'per  mile  per  annum  for  operating  expenses.  And,  prob- 
ably to  divert  the  attention  of  the  Central  Pacific  stockholders  from 
the  importance  as  well  as  the  dishonesty  of  this  lease,  it  was  made 
terminable  by  a  notice  of  sixty  days,  as  if  it  were  a  mere  temporary 
arrangement.  The  very  circuitous  mode  here  resorted  to  of  reaching  a 
rent  of  $3,000  per  mile  per  annum  naturally  suggests  a  sinister  design, 


[8] 

and  there  was  one  quite  in  harmony  with  the  whole  knavish  proceed- 
ing of  which  it  formed  a  part.  The  object  was  to  enable  the  Southern 
Pacific  railroad  to  appear  in  the  financial  publications  of  the  day  as 
earning  from  this  branch  of  its  road,  while  yet  unfinished  and  without  a 
terminus  at  either  end,  $6,000  per  mile  per  annum,  and  being  operated 
at  fifty  per  cent,  of  its  gross  earnings!  Obviously,  a  road  through  a 
new  country  which,  while  yet  in  an  unfinished  condition — running,  in 
fact,  from  no  place  to  no  place, — could  make  such  a  showing  as  that, 
had  before  it  the  brightest  of  prospects.  The  terms  of  this  fraudulent 
lease,  therefore,  were  arranged  for  the  purpose  of  deceiving  the  public, 
by  holding  out  false  and  delusive  prospects  of  the  earning  capacity  of 
the  road,  and  thus  rendering  the  disposal  of  the  bonds  more  easy. 
The  making  of  this  lease  and  the  particular  form  of  reservation  of 
rent  in  it  were  both  parts  of  a  dishonest  contrivance  to  bolster  up  the 
credit  of  the  Southern  Pacific  Railroad  Company,  at  the  expense  of 
the  Central,  and  to  enable  Messrs.  Huntington  and  associates,  while 
acting  as  directors  and  trustees  of  the  latter  company,  to  hypothecate 
and  afterwards  sell  the  bonds  of  the  former.  It  need  scarcely  be  said 
that  this  constituted  a  gross  fraud  on  the  Central  Pacific  Company 
and  its  stockholders,  and  that  under  our  law,  as  under  that  of  all 
civilized  countries,  the  last-named  company  is  entitled  to  recover  from 
its  dishonest  trustees  all  gains  and  profits  of  every  kind  derived  from 
it,  and  this  without  any  participation  in  or  allowance  for  their  labor 
or  risk  in  the  venture. 

The  disgraceful  history  of  this  issue  of  bonds  of  the  Southern 
Pacific  R.  R.  Co.  is  not  yet  all  told,  nor  the  published  evidence  of  the 
fraudulent  design  exhausted.  They  were  inscribed  on  the  stock  list 
and  offered  on  the  New  York  exchange;  bids,  offers,  washed  sales  and 
all  means  (even  down  to  a  fictitious  sale  of  a  lot  of  them  under  an 
execution)  were  resorted  to  to  give  them  currency,  but  without  success; 
the  gudgeons  of  Wall  Street  refused  to  bite;  and  down  to  March,  1880, 
the  bonds  remained  in  the  hands  of  the  construction  company,  unsold 
and  practically  unsaleable. 

About  the  period  last  mentioned,  Messrs.  Speyer  &  Co.,  a  firm  of 
bankers  in  New  York,  pointed  out  the  weak  spot  in  Mr.  Huntington's 
case  to  him;  it  consisted  in  the  right  to  terminate  the  lease  by  sixty  days'' 
notice,  and  they  offered  if  that  defect  were  remedied  to  their  satisfac- 
tion to  take  up  the  loan  and  float  the  first  ten  million  of  the  bonds  at 
a  price  agreed  on.  They  agreed  to  take  two  millions  of  them  at  ninety, 
and  got  an  option  of  eight  more.  As  if  to  emphasize  the  fraud  on  the 
Central  Pacific  Company,  and  illustrate  it,  if  possible,  more  clearly, 
the  bankers  insisted  on,  and  Messrs.  Huntington  &  Co.  consented  to  a 
modification  of  the  lease  to  the  Central  Pacific  Company,  whereby  it 
was  made  to  continue  in  force  absolutely  for  five  years,  and  thereafter, 
until  the  Southern  Pacific  should  have  extended  its  road  so  far  as  to  con- 
nect directly  by  rail  with  the  railroad  system  of  the  Atlantic  side,  not  ex- 
ceeding ten  years  in  all.  This  modification  of  the  lease  was  made  and 
executed  early  in  1880,  and  the  preliminaries  having  all  been 
arranged,  and  the  comedy  fully  rehearsed,  there  appeared  on  the 
morning  of  March  9,  1880,  and  the  three  following  days,  in  the  "  New 
York  Tribune,"  an  advertisement,  announcing  that  subscriptions 
would  be  opened  on  the  11th  of  that  month,  and  closed  on  the  12th, 
in  New  York,  Boston,  Frankfort-on-Main,  London,  Amsterdam,  and 
Berlin,  for  ten  million  dollars  of  six  per  cent,  first  mortgage  bonds  of 
the  Southern  Pacific  Railroad  Company  (describing  them),  offers  to  be 


[  9  ] 

made  to  certain  banking  houses  of  those  cities  respectively.  This  ad- 
vertisement was  conspicuously  displayed,  and  among  the  inducements 
offered  were  that  the  bonds  "  were  secured  by  a  first  mortgage  on  the 
railroad  and  telegraph  line,  rolling  stock,  fixtures,  land  and  franchises 
of  the  Southern  Pacific  Railroad  of  California."  That  the  total  length 
of  the  projected  road  was  1,150  miles  (specifying  how  made  up),  "of 
which  712  miles  were  completed  and  in  operation,"  divided  into  the 
Northern  and  Southern  divisions,  the  former  extending  from  San 
Francisco  to  Soledad,  and  from  Carnardero  to  Tres  Pinos,  in  all  161 
miles,  and  the  latter  from  Huron  to  Yuma  (with  a  branch  of  the  road 
from  Los  Angeles  to  Wilmington),  in  all  551  miles,  and  interesected 
at  Goshen  by  the  San  Joaquin  branch  of  the  Central  Pacific  road. 
That  the  net  earnings  of  the  southern  division  (through  rental  to 
C.  P.  R.  R.  Co.), 
were  in  1878 $1,656,360  00 

"      '^      "     1,635,554  93 

that  the  San  Joaquin  Valley  Branch  of  the  Central  Pacific  Railroad 
fiirni><hecl  the  Southern  Divisiomvith  an  outlet  both  to  San  Francisco 
and  eastward  over  the  main  line  of  the  Central  Pacific  RaiU 
road,  and  that  "  in  view  of  common  interests  the  Central  Pacific  Rail- 
"  road'  Company  had  taken  a  lease  of  the  Southern  Division  of  the 
"  Southern  Pacific  Railroad  of  California,  for  a  period  of  not  less 
"  than  five  years,  from  January,  1880,  and  by  the  terms  of  the  lesiseif 
"  a  railroad  is  not  completed  in  five  years  from  that  date,  so  that 
"  there  is  a  connection  of  the  Southern  Pacific  Railroad  of  California 
*'  ivith  the  eastern  system  of  railroads  on  what  is  known  as  the  S2nd 
"  parallel  line,  the  lease  shall  be  extended  until  such  connection  is 
"  made;  provided  such  extension  does  not  exceed  five  years  longer,  or 
"  ten  years  in  all  from  January,  1880.  That  by  the  terms  of  the  lease 
"  the  net  rental  agreed  to  he  paid  during  the  continuance  of  this  lease 
"  and  any  extention  thereof  shall  be  $250.00  per  month,  or  $3,000.00 
"  per  year  per  mile  (being  at  present  on  about  551  miles,  equals  about 
"  $1,650,000.00  annual  rental),  '  and  if  for  a/ay  cause,  it '  shall  be  re- 
"  duced  by  mutual  consent  of  the  parties,  that  the  annual  amount  oj 
"  such  rental  reduced  shall  at  least  be  sufficient  to  pay  all  the  interest 
"  that  has  been  or  may  be  agreed  to  be  ^jaid  in  any  one  year  on  any 
"  bonds  of  the  Southern  Pacific  Railroad  Company  of  California, 
"  outstanding  during  the  continuance  of  this  lease.'' 

The  modifications  in  the  terms  of  the  lease  indicated  in  this  adver- 
tisement seem  to  have  been  all  that  was  required  by  the  bankers,  and 
promptly  after  the  time  for  closing  the  bids,  without  waiting  to  hear 
from  London,  Frankfort-on-Main,  Amsterdam  or  Berlin,  it  was  an- 
nounced that  the  whole  block  of  bonds  had  been  taken  by  Messrs. 
Speyer  &  Co.,  and  thereafter  they  were  gradually  peddled  out  on  the 
New  York  market  and  ultimately  found  buyers.  The  sales  of  these 
bonds  thus  introduced  in  the  stock  exchange  by  the  credit  of  the  Cen- 
tral Pacific  Company  aggregated  over  $32,000,000  and  at  an  (estimated) 
average  price  of  about  95  per  cent.  The  sales  from  the  land  grant 
obtained  by  the  building  of  the  road  have  amounted  to  over  ten  million 
dollars,  and  much  remains  unsold.  All  these  large  sums  should  be 
accounted  for  to  the  Central  Pacific  Company  as  the  fruits  of  the  fraud. 
Thus  the  dishonest  directors  of  the  Central  Pacific  road  procured  the 
means  for  constructing  the  Southern  Pacific,  which  by  its  shorter  mile- 
age between  the  oceans,  its  easier  grades,  and  the  preference  given  it 


[10] 

in  the  routing  of  freight,  has  been  almost  the  ruin  of  the  Central  Pacific. 
To  ensure  the  disastrous  result  however,  the  managers  determined  to 
cut  off  its  local  freights  also,  and  to  this  end  constructed  (in  the  names 
of  companies  ultimately  consolidated  with  the  Southern  Pacific)  a  sub- 
stantially parallel  road  through  the  San  Joaquin  Valley  on  each  side 
of  the  Central,  ready  to  intercept  every  pound  of  freight  approaching 
it  on  either  side! 

Other  Frauds  in  Central  Pacific  Management. 

1.  We  have  already  mentioned  the  ninety-nine  year  lease  of  the 
Central  Pacific  road  to  the  Southern  Pacific  Company  (of  Kentucky). 
Considering  the  relative  positions  of  the  several  parties,  the  ownership 
by  the  lessees  of  the  whole  stock  of  the  rival  road  and  that  of  the 
Southern  Pacific  Company's  stock  by  those  managing  the  Central 
Pacific  direction,  it  cannot  be  doubted  that  this  lease  would  be  pro- 
nounced by  any  court  of  equity  a  gross  fraud  on  the  Central  Pacific 
Company.     Its  ruinous  character  is  obvious. 

We  will  not  dwell  on  the  diversion  of  traffic  from  the  Central  to  the 
Southern  route,  though  the  loss  of  revenue  by  the  former  from  that 
cause  must  have  been  enormous.  Owning  all  the  stock  of  the  one 
road  and  having  no  interest  in  the  other,  while  they  managed  both,  it 
was  perhaps  but  natural  for  such  parties  to  favor  their  own  road  at 
the  expense  of  the  other.  The  power  to  do  so  was  obviously  a  princi- 
pal motive  for  the  ninety-nine  year  lease,  the  terms  of  which,  it  may 
be  remarked,  left  them  at  liberty  to  change  the  rent  from  time  to  time 
practically  at  discretion.  To  assert  that  they  exercised  with  imparti- 
ality great  powers  so  dishonestly  obtained  would  be  to  invite  derision, 
not  belief.  The  Kentucky  corporation  as  lessee  of  both  roads  did  the 
carrying,  issued  the  bills  of  lading,  etc.,  so  that  unless  the  shipper 
took  special  pains  (for  which  there  was  rarely  a  motive)  to  expressly 
direct  his  freight  sent  over  the  Central  route,  it  was  at  the  discretion 
of  the  carriers,  and  naturally  went  by  the  Southern.  The  arrange- 
ment of  time  schedules,  greater  promptness  in  delivering  freight,  adjust- 
ing reclamations,  and  like  considerations,  helped  to  determine  the 
choice  of  shippers  in  the  same  direction.  The  revenues  of  the  Central 
Pacific  road  rapidly  fell  off,  and  its  dividends  went  down  to  three  and 
two  per  cent.,  and  finally  to  zero. 

2.  For  many  years  after  the  completion  of  the  Central  Pacific  road, 
its  managers  were  the  largest  borrowers  of  money  in  the  San  Francisco 
market,  and  large  borrowers  wherever  they  could  obtain  it.  Any  per- 
son having  a  sum  of  any  magnitude  to  loan  could  have  from  them  the 
note  or  the  endorsement  of  the  Central  Pacific  Railroad  Company. 
None  of  this  money  tvas  for  the  use  of  the  Central  Pacific  Company,  hut 
for  that  of  the  managers;  yet  the  credit  of  the  Central  Pacific  Company 
was  strained  to  the  utmost  to  procure  it.  An  ordinary  broker's  com- 
mission on  these  loans  of  credit  would  amount  to  a  large  fortune. 

It  would  be  difficult  to  put  a  limit  to  the  recovery  which  the  Central 
Pacific  Company  is  entitled  to  from  its  dishonest  managers  and  its 
rivals  for  these  frauds,  which  are  probably  but  specimens,  of  which 
there  are  plenty  more  to  be  brought  to  light  by  a  proper  investigation. 
This  seems  to  be  the  most  appropriate  place  to  account  the  latest 
chapter  of  Central  Pacific  history,  which  has  indeed  something  of  the 
grotesque  about  it. 

IV.  The  appeal  to  Congress  to  refund  the  debt  at  a  low  interest  is 
made  on  the  suggestion  of  inability  to  pay.     Hon.  Grove  L.  Johnson, 


[  11  ] 

of  the  House  of  Representatives,  published,  during  the  recess  of  Con- 
gress, a  long  letter  defending  the  pending  measure,  substantially  on 
that  ground.  He  thought  that  at  any  higher  rate  of  interest  than  two 
per  cent,  the  company  could  not  pay  the  debt  without  rates  of  freight 
that  would  be  ruinous  to  California  shippers.  He  could  not  have  been 
aware  when  he  did  this — in  fact  few  would  listen  with  patience  to  such 
an  argument,  if  they  were  aware, — that  at  the  very  time  Mr.  Huntington 
is  posing  the  company  before  Congress  in  forma  pauperis,  he  has  been  pay- 
ing the  stockholders  dividends  on  their  shares  and  is  under  promdse  to 
double  the  same  as  soon  as  the  refunding  bill  has  been  passed.  The  pay- 
ment of  this  dividend  has  not  had  any  publicity,  has  in  fact  been 
practically  a  secret,  but  it  is  the  fact,  and  the  history  and  proof  of  it 
are  about  as  follows: 

The  Secret  Dividends  of  1895, 1896,  and  How  Brought  About. 

It  is  known  that  the  great  bulk  of  the  Central  Pacific  stock  is  held 
in  England.  It  \Yas  sold  io  English  purchasers  between  1875  and 
1890  by  the  device  of  paying  large  dividends  on  it  while  at  the  same 
time  the  sellers  were  building  the  Southern  Pacific  road  to  take  away 
its  business  as  above  related.  The  Englishmen  were  deterred  from 
transferring  their  shares  to  their  own  names  by  the  artful  suggestion 
of  individual  liability  for  corporate  debts,  and  more  especially  for  the 
Government  subsidy  bonds  under  California  law.  Their  holdings 
were  therefore  represented  by  certificates  in  the  names  of  former 
holders,  endorsed  in  blank.  To  facilitate  concealment  of  ownership  a 
form  of  certificates  was  invented,  with  dividend  coupons  attached;  so 
that  the  holder  need  not  a  receipt  for  his  dividends  or  even  present 
himself  to  get  them.  No  one  could  know  his  identity  except  the 
banker  with  whom  he  deposited  his  coupons.  These  former  holders 
were  employees  of  the  company  to  whom  the  managers  had  trans- 
ferred their  shares  in  lots  of  ten,  twenty,  thirty,  fifty,  one  hundred, 
two  hundred,  three  hundred,  and  five  hundred  shares,  which,  being 
endorsed,  passed  from  hand  to  hand  by  delivery  only.  Proxies  for 
voting  were  taken  in  all  cases  from  these  employee-shareholders ,  which  as 
the  stock  remained  on  the  companies^  books  in  their  ?ia?nes  have  enabled 
the  sellers  ever  since  to  elect  the  directors  and  control  the  management  of 
the  company.  Dividends  paid  under  a  former  arrangement  ceased 
some  two  years  since,  and  after  a  period  of  waiting,  the  English- 
men became  dissatisfied  with  the  management,  and  after  meetings 
and  consultations  despatched  to  this  country  Sir  Rivers  Wilson, 
to  investigate,  threaten,  and  get  what  he  could  for  them  from  the 
directors  of  the  company.  Sir  Rivers  came  to  California,  interviewed 
the  officers  of  the  company,  made  his  examinations,  etc.,  and  was  re- 
ported in  the  papers  after  his  return  to  the  East  as  having  arrived  at  a 
compromise  with  Mr.  Huntington,  the  President  of  the  Southern  Pacific 
Company  After  this  settlement  he  was  reported  in  the  press  as  pro- 
ceeding to  Washington  and  there  contributing  his  effort  in  favor  of  the 
refunding  bill  of  last  session.  On  his  return  to  England,  the  results 
of  his  mission  was  communicated  to  his  constituents,  with  the  recom- 
mendation that  they  transfer  their  shares  to  their  own  names,  and 
take  the  control  of  their  own  property.  The  substance  of  his  negotia- 
tion soon  became  known  on  the  London  stock  exchange,  where  the 
shares  were  dealt  in,  and  the  London  "  Economist,"  a  financial  journal 
of  high  standing,  noticed  the  matter  as  one  of  public  interest,  in  its' 
issue  of  March  23rd,  1895,  in  the  following  terms: 


[  12  ] 

From  the  "  Economist^^  {London),  March  23d,  1895,  page  385. 
The  Position  of  the  Central  Pacific. — Some  slight  compensation  it 
*^  appears  Mr.  C.  P.  Huntington  is  willing  to  make  to  the  Central 
*^  Pacific  shareholders,  since  he  has  stated  through  Sir  Rivers  Wilson 
*'  that  he  will  undertake  to  pay  one  per  cent,  per  annum  in  the  shape 
"  of  dividends  until  '  satisfactory  legislation  has  been  obtained  for  the 
**  adjustment  of  the  company's  debt  to  the  government,'  after  which 
"  rather  vague  date,  two  per  cent,  per  annum  is  to  be  paid  for  the 
"  period  of  two  years,  during  which  the  shareholders  will  have  time  to 
"  review  their  position,  and  to  consider  the  advisability  of  endeavoring 
"  to  effect  an  arrangement  or  a  more  permanent  and  more  profitable 
**'  character.  Sir  Rivers  Wilson  takes  the  same  view  of  the  position  of 
**  the  company  as  that  of  the  Economist,  and  indeed  that  of  most  of  those 
"  who  have  considered  the  facts.  The  Central  Pacific  is  at  present  in 
"  the  grasp  of  the  Southern  Pacific,  which  is  virtually  Mr.  Huntington 
*'  in  what  may  be  termed  a  corporate  form;  it  would  have  remained  a 
*'  profitable  undertaking  if  the  present  lessees  had  not  worked  its  ruin. 
*'  In  the  future  probably  it  can  be  best  worked  in  connection  with  the 
*'  Southern  Pacific,  provided  equitable  terms  can  be  arranged;  and 
*'  finally  as  there  is  nothing  really  to  fear  in  the  theoretical  liability 
"  on  the  shares,  holders  should  at  once  without  delay,  register,  so  as  to 
"  make  their  voting  power  efficient.  If  that  be  done,  and  if  terms  can 
"  be  made  with  the  government,  English  investors  may  ultimately 
"  suffer  less  loss  than  once  appeared  probable.  They  will  however, 
"  have  to  be  very  careful  in  approaching  Congress.  They  must  re- 
"  member  that  they  have  no  claim  to  anything  save  that  which  is 
*'  given  by  the  strict  letter  of  the  law.  If  they  have  been  swindled  by 
"  the  'bosses'  in  control  of  the  Company,  which  is  often  alleged,  not 
^'  only  have  many  others  suffered  in  the  same  way,  but  few  have  been 
*'  guilty  of  so  much  contributory  negligence.  It  has  also  to  be  remem- 
^'  qered  that  if  the  shareholders  have  not  fared  well,  the  United  States 
"  government  made  a  bad  bargain  over  the  subsidy  which  it  granted 
"  to  the  Central  and  Union  Pacific  Companies.  And,  of  course,  it  is 
*'  scarcely  necessary  to  assert  that  the  fact  of  the  credit  of  the  United 
*'  States  having  so  greatly  improved  is  no  reason  whatever  why  one  of 
*'  its  debtors  whose  credit  has  not  improved,  to  put  it  mildly,  should 
*'  get  free  from  the  obligation.  As  a  matter  of  fact,  the  American 
"  government,  does  not.  we  think,  want  to  foreclose,  for  simply  as  a 
"  question  of  expediency,  that  would  be  unadvisable,  and  therefore  if 
^'  the  Company  sues,  as  it  is  bound  to  do  in  forma  pauperis.  Congress 
"  will  probably  come  to  some  fair  arrangement  despite  the  apparently 
*^  hostile  position  which  it  has  recently  assumed." 

Four  weeks  after  the  publication  of  this  article,  Mr.  Huntington  re- 
plied to  it  under  his  own  signature,  as  follows: 

Mr.  Huntington's  Reply. 

From  the  ''Economist''  of  April  20th,  1895,  page  519. 
*'  Mr.  Huntington  and  the  Central  Pacific  Railroad. — To  the 
*'  Editor  of  the  Economist;  Sir: — Some  one  has  sent  me  a  clipping 
"  from  your  issue  of  March  23d.  The  Economist  has  been  sent  to  me 
"  occasionally  for  years,  and  I  have  heretofore  considered  it  one  of  the 
"  best  financial  papers  published  in  England.  That  being  so  I  do  not 
**  think  its  editor  would  knowingly  do  any  individual  or  corporation 
"  wrong. 


BANCROFT  LIBRARY 
SUTi^O.  JUNE  (939 

[  13  ] 

"  I  was  the  principal  factor  in  building  the  Central  Pacific  road; 
"  that  is  I  organized  the  company,  and  sold  all  the  securities,  I  believe 
"  I  intended  to  deal  fairly  with  all  people  having  dealings  with  the 
''  company,  and  I  believe  I  have  done  so. 

"  The  Government,  as  you  know,  granted  aid  to  two  other  lines — 
"  the  Northern  Pacific  and  Atlantic  and  Pacific  (Atchison  Topeka  and 
"  Santa  Fe) — which  not  only  divided  the  tonnage,  but  cut  down  the 
^'  rates;  and  later  other  roads  were  built,  so  that  there  are  now  sub- 
"  stantially,  seven  roads  crossing  the  continent,  when  one  double 
'^  track  railroad  could  do  all  the  business  that  is  being  done,  and 
''  much  more,  without  any  particular  inconvenience. 

''  If  any  body  has] any  charge  to  make  of  any  particular  thing  that 
"  I  have  done  that  was  unfair,  I  would  like  to  have  him  tell  me  what 
"  it  is.  No  one  up  to  this  time  has  told  me,  or  intimated  that  there 
"  was  any  particular  charge,  but  in  a  general  way,  some  of  the  Cali- 
"  fornia  newspapers  and  some  of  the  discharged  employees  have  been 
"  wildly  throwing  words  into  the  air  to  the  effect  that  something  had 
"  been  done  somewhere  or  at  some  time,  but  they  do  not  state  where  or 
"  how. 

''  The  Central  Pacific  should  have  cost  twice  as  much  to  build  as  any 
''  other  road  did,  as  the  physical  obstructions  to  overcome  were  much 
"  greater,  and  all  the  cost  of  construction,  for  grading,  timber  work, 
''  such  as  the  bridges,  ties,  etc. — in  fact,  everything  that  was  furnished 
"  in  the  building  of  the  road,  excepting  rails,  fastenings  and  rolling 
"  stock,  was  paid  for  in  gold  in  the  sixties,  when  gold  was  at  a  high 
"  premium.  The  coal  we  had  to  use  as  fuel,  cost  us  for  many  years 
"  an  average  of  over  eight  dollars  a  ton,  which  is  immensly  more  than 
"  it  cost  the  other  aided  roads,  and  still  the  Northern  Pacific  is  in  the 
'^  hands  of  a  receiver,  I  believe  for  the  second  time,  the  Atchison 
"  Topeka  and  Santa  Fe  (Atlantic  and  Pacific),  is  in  the  hands  of  re- 
"  ceivers  for  the  second  time,  and  the  Texas  Pacific,  I  think,  has  been 
^'  in  the  hands  of  the  receiver  three  times;  whilst  the  Central  and 
"  Southern,  I  believe  have  paid  all  their  debts,  and  I  have  no  doubt 
"  will  be  able  to  do  so  in  the  future,  with  the  exception  of  the  debt 
"  owing  to  the  Government,  upon  which  it  is  hoped  Congress  will  grant 
"  an  extension  at  a  low  rate  of  interest,  such  as  the  companies  can 
"  meet  and  still  pay  something  to  the  shareholders. 
"  I  am  very  truly  yours, 

'^  C.  P.  Huntington. 

"  New  York,  April  3rd,  1895." 

Mr.  Huntington,  it  will  be  seen,  does  not  deny  the  correctness  of  the 
Economist's  statement  of  the  agreement,  but  pleads  in  confession  and 
avoidance,  that  he  was  the  chief  factor  in  building  the  road  and  sold 
all  its  securities,  and  that  he  has  not  put  it  in  the  hands  of  a  receiver, 
he  adds  that  he  has  not  been  informed  of  any  specific  charges  of  mis- 
conduct against  himself.  This  defense,  so  far  as  it  goes,  is  partly 
true.  Mr.  Huntington  has  not  put  the  road  into  the  hands  of  a  re- 
ceiver, probably  because  he  preferred  to  receive  himself.  But  he 
does,  by  his  eloquent  silence,  distinctly  confess  that  to  pacify  the 
English  stockholders,  represented  by  Sir  Rivers  Wilson,  he  agreed 
with  that  gentleman  that  they  should  be  paid  in  the  shape  of  divi- 
dends on  their  stock  one  per  cent,  per  annum  until  satisfactory  legis- 
lation has  been  obtained  for  the  adjustment  of  the  company's  debt  to 
the  government,  "after  which  two  per  cent,  per  annum  should  be  paid 


[  14] 

for  two  years  more,"  to  permit  the  shareholders  to  review  their  posi- 
tion and  consider  the  advisability  of  endeavoring  to  effect  an  arrange- 
ment of  a  more  permanent  and  profitable  character.  These  state- 
ments can  leave  no  doubt  of  the  agreement  with  Sir  Rivers  Wilson,  but 
they  are  at  the  moment  of  writing  confirmed,  if  confirmation  were 
needed,  by  an  interview  with  Col.  C.  F.  Crocker,  Vice-President  of  the 
Southern  Pacific  Company,  published  in  the  San  Francisco  "Chron- 
icle" of  December  2nd,  1896,  wherein  he  says:  "The  Central  Pacific 
is  not  on  velvet,  but  it  is  not  in  the  depths  of  despair  into  which  the 
Northern  Pacific  has  fallen,  and  the  stockholders  have  been  receiving  a 
small  dividend  every  year^  The  payment  of  this  secret  dividend  is 
then  established. 

Amount  of  this  Largess— By  Whom  Paid,  and  Why— Falsifying 
Annual  Reports  to  Conceal  It. 

To  pay  a  dividend  of  one  per  cent,  on  the  stock  of  the  Central  Pa- 
cific Company  requires  $672,000  dollars,  an  amount  too  large  to  be 
overlooked  by  a  slip  in  book-keeping,  or  to  be  easily  concealed  under 
some  general  head.  And  the  question  whence  comes  the  money 
wherewith  they  are  paid  is  not  without  importance;  for  these  great 
railroad  companies,  whether  we  regard  them  as  quasi-public  corpora- 
tions, or  as  organized  solely  for  private  gain,  are  certainly  exercising 
great  public  franchises  and  trusts  which  affect  large  numbers  of  peo- 
ple. They  publish  annual  reports  of  their  dealings  and  business,  on 
the  truth  of  which  millions  of  dollars  are  invested,  frequently  the 
funds  of  unprotected  and  helpless  people,  and  even  legislation  is  pre- 
dicated. The  publication  of  falsehood  or  the  suppression  of  truth  in 
such  reports  is,  therefore,  an  offence  against  public  morals  of  the 
gravest  sort,  which  not  even  the  most  devoted  partisan  would  venture 
to  defend,  or  propose  to  condone.  We  have  searched  the  annual  reports 
of  the  Southern  Pacific  Company  and  of  the  Central,  both  those  made 
under  oath  and  laid  before  the  State  Railroad  Commissioners,  and 
those  printed  by  themselves  for  public  information,  without  being 
able  to  find  one  word  on  these  dividends  or  any  allusion  to  them;  the 
inference  seems  inevitable  of  an  intent  to  conceal  them  from  Congress 
and  the  public.  Surely  the  Congress  of  the  United  States  will  exact 
from  applicants  for  its  bounty,  at  least  the  homage  of  respect  for 
truth,  in  the  representations  on  which  it  is  called  on  to  act !  The 
payment  or  amount  of  these  dividends  is  not  of  so  much  importance 
as  the  duplicity  and  falsehood  of  the  managers  w^hich  it  reveals.  And 
the  question  comes  right  home  to  Mr.  Huntington,  personally,  for  the 
bargain  was  made  with,  and  the  promises  made  by  him,  and  the  reports 
from  which  it  is  suppressed  bear  his  signature,  and  are  distributed  by 
himself  and  with  his  sanction.  Failing  to  disclose  the  truth  in  a 
matter  so  material,  their  statements  and  those  of  their  authors  must 
be  justly  discredited  in  everything. 

Denied  authoritative  information  as  to  the  motives  for,  or  the  source 
of  this  extraordinary  dividend,  which  was  paid  to  the  stockholders 
without  being  earned  by  the  company,  declared  by  the  board  of 
directors  or  shown  on  the  books  of  account,  we  are  driven  to  conjec- 
ture; and  the  suggestion  arises  that  they  may  be  paid  by  one  or  more 
of  the  guilty  directors  or  other  persons  interested  in  placating  the  dis- 
satisfied stockholders  and  passing  the  refunding  bill.  This  conjecture 
is  not  without  probability,  and  if  accepted,  public  opinion  will  not  be 
apt  to  hesitate  long  as  to  the  name  of  the  distributor  of  such  lavish 


[  15  ] 

largess  or  in  conjecturing  its  motive.  A  settlement  made  with  the 
United  States,  embodied  in  an  Act  of  Congress,  which  at  the  same 
time  condones  so  many  and  juch  monstrous  frauds,  ensures  his  South- 
ern Pacific  road  for  eighty-eight  years  to  come  against  the  competi- 
tion of  the  Central  Pacific  road,  and  gives  to  his  dishonest  ninety-nine 
years  lease  the  sanction  of  the  law  of  the  land,  may  well  be  worth  double 
or  treble  the  sum  required  to  pay  these  dividends — say  $4,032,000. 

Another  probable  conjecture  is  that  the  arrangement  is  designed  to 
permit  the  English  stockholders  to  sell  out  their  holdings  and  shift 
the  loss  on  other  victims,  which  perhaps  two  years'  time  with  dividends 
meantime  at  two  per  cent,  per  annum,  may  enable  them  to  do.  Such 
a  course  may  seem  to  them  preferable  to  litigation  with  an  adversary 
whom  they  have  been  led  to  believe  the  only  man  capable  of  handling 
the  U.  S.  Congress,  and  who,  if  this  measure  passes,  will  readily  be 
credited  with  like  power  to  "  handle"  the  President,  and  thus  capable 
of  calling  down  on  them  the  thunders  of  Olympian  Jove  in  the  shape 
of  an  executive  option  to  call  in  the  debt  the  instant  if  they  dare  to 
attack  the  lease  which  has  been  their  ruin. 

In  any  case  for  Congress,  in  face  of  the  revelations  here  made,  to  pass 
a  refunding  act  based  as  all  such  propositions  are,  on  the  supposed 
inability  of  the  company  to  pay  its  debt — without  a  previous  clear 
explanation  and  understanding  of  this  transaction,  whether  it  repre- 
sents dividends  or  hush-money,  would  be  to  put  itself  in  the  position 
of  appearing  as  either  the  dupe  of  designing  men  or  their  instrument 
in  deceiving  others.  Neither  position  very  desirable,  or  consistent  with 
its  own  honor  and  dignity. 

Other  Assets  of  the  Central  Pacific  Company. 

There  are  other  assets  of  the  Central  Pacific  Company  which,  though 
not  of  such  magnitude  as  those  mentioned,  should  not  be  lost  sight  of. 
Among  these  there  is  a  mortgage  made  April,  1889,  for  $16,000,000 
under  which  the  latest  report  shows  $12,283,000  bonds  issued.  This 
mortgage  covers  a  variety  of  scattered  properties,  the  most  important 
being  the  land  in  Mission  Bay,  San  Francisco  (30  acres),  granted  by 
the  Legislature  in  1868,  for  terminal  purposes,  and  since  enlarged  by 
the  closing  of  streets  to  nearly  fifty.  The  variety  of  properties 
included  in  the  mortgage  suggests  the  intent  to  cover  everything 
the  company  had  left  not  specifically  and  safely  covered  before. 
These  bonds  have  never  made  their  appearance  on  the  stock-exchange 
nor  been  dealt  in  by  the  public.  The  fact  that  an  action  was  com- 
menced by  the  Attorney  General  to  vacate  the  patent  for  the  Mission 
Bay  lands,  soon  after  its  issue,  which  has  been  pending  ever  since, 
would  be  quite  sufficient  to  prevent  their  sale  to  real  investors,  and 
hence  it  is  perfectly  safe  to  assume  that  these  $12,283,000  bonds  are  in 
the  hands  of  the  old  directors,  under  the  name  of  some  one  of  their 
numerous  companies.  There  is  no  probability  that  they  could  pass 
an  investigation  as  to  their  origin  or  consideration  (issued  in  all  prob- 
ability to  themselves  under  the  name  of  a  construction  company,  in 
their  usual  way),  and  investigation  should  be  made,  that  the  terminal 
grounds  may  be  preserved  to  the  company  for  the  uses  designed,  not 
converted  to  private  uses  for  warehouse  property  on  which  it  will 
hereafter  have  to  pay  rent  to  its  former  directors  and  their  heirs  and 
assigns  forever. 

Another  item  of  much  less  amount  than  that  last  mentioned 
which  might  be  profitably  investigated,  rather  perhaps  as   illustra- 


[  1«  ] 

tive  of  the  methods  of  these  people  and  the  character  of  these  annual 
reports  on  the  presumption  of  the  accuracy  of  which,  Congress  is  asked 
to  act,  relates  to  one  of  the  sinking  funds  of  the  Central  Pacific  Com- 
pany, and  the  story  as  derived  from  the  reports  themselves  is  about  as 
follows: 

When  Messrs.  Huntington  and  associates  commenced  the  railroad 
business,  being  somewhat  inexperienced,  they  appointed  trustees  to 
manage  their  sinking  funds,  and  for  the  Central  Pacific  Land-grant 
mortgage  of  1870,  two  gentlemen  were  named  of  known  responsibility 
and  wealth.  Probably  requiring  some  little  time  to  attend  to  their 
own  affairs,  and  as  the  accounts  of  the  land  sales,  bonds,  redemptions, 
etc.,  were  kept  in  the  railroad  company's  office,  and  everything  ran 
smoothly,  they  appear  to  have  imitated  the  great  Grecian  poet,  and 
to  have  nodded — just  for  a  moment.  During  this  moment  of  somno- 
lence some  one,  more  vigilant  than  they,  got  away  with  no  less  than 
$2,500,000  of  the  money  belonging  to  the  sinking  fund!  The  trustees 
of  course  awoke  in  time,  and  there  was  probably  a  disturbance,  or  at 
least  an  edaircisement.  Of  these  particulars  we  are  not  informed,  but 
the  published  reports  disclose  that  a  settlement  was  reached  in  pur- 
suance of  which  the  Central  Pacific  Company  gave  to  the  trustees  of 
the  Land-grant  mortgage  its  five  notes  for  five  hundred  thousand 
each,  payable  in  one,  two,  three,  four,  and  five  years,  with  interest  at 
four  per  cent,  per  annum,  to  supply  the  deficit.  (Vid.  Rep.  of  1891, 
p.  100 )  These  notes  were  sacredly  "  pledged  the  redemption  of  the 
bonds,"  as  the  money  they  represent  was  pledged  before  it  was  eloign- 
ed; and  as  the  bonds  drew  six  per  cent,  interest,  and  the  notes  but 
four,  the  equitable  consideration  extended  by  the  creditors  to  the 
gentlemen  who  had  taken  their  money,  and  the  profit  made  by  the 
latter  by  the  transaction,  may  be  readily  calculated.  What  is  unex- 
plained about  the  settlement  is  that  the  notes  were  executed  by 
the  Central  Pacific  Company,  yet  the  next  page  informs  us  (and  sub- 
sequent reports  confirm  the  statement)  that  the  interest  on  these  notes 
is  paid  by  the  Southern  Pacific  Company!  If  the  Central  Pacific 
Company  did  not  get  the  two  and  a  half  millions  of  principal  taken, 
why  did  that  company  give  its  notes  for  the  amount  ?  And  if  it  did 
get  the  principal,  why  does  the  Southern  Pacific  (which  is  not  strictly 
a  benevolent  institution)  pay  the  interest  ?  These  are  queries  which 
probably  none  but  Mr.  Huntington  himself  can  answer.  The  facts 
indicate  crookedness. 

Other  objections  to  the  proposed  extension  of  time  which  time  for- 
bids us  to  dwell  on,  are: 

V.  The  fact  that  such  course  necessarily  involves  a  prolongation 
of  the  life  of  the  Central  Pacific  Railroad  Company,  which  is  a  Cali- 
fornia corporation  for  many  years  beyond  the  legal  term  of  its  existence, 
without  reasonable  necessity  for  such  action,  and  distinctly  against 
the  will  and  protest  of  the  people  of  the  State,  from  which  it  derives 
its  life  and  being.  We  are  not  disputing  the  power  of  Congress  for 
federal  purposes  to  do  such  an  act  if  in  its  judgment  necessary,  but 
without  necessity  it  should  not  be  done.  Independent  of  the  over- 
riding of  the  authority  of  the  State  government  over  its  own  creature, 
such  an  act  will  create  a  body  politic  without  any  defined  limitations 
on  its  corporate  powers,  or  any  law  governing  its  methods  of  proceeding, 
its  rights  with  regard  to  its  shareholders  or  their  liabilities,  and  the 
charter  of  which  could  not  be  forfeited  by  any  court.  State  or  Federal, 


BANCROFT  LIBRARY 
SUTJJO-  JUN£  i939 

[  17] 

no  matter  how  gross  its  offences.  No  State  court  could  interfere  be- 
cause the  concern  would  be  a  Federal  corporation;  and  no  Federal 
court  could  act  because  the  United  States  have  no  statute  on  the  subject. 

VI.  This  Central  Pacific  Company  under  its  past  and  present  man- 
agement has  come  to  be  the  most  odious  and  detested  corporation  that 
has  probably  ever  been  known,  and  this  "  for  reasons,  capital,  confessed 
and  proved."  It  has  invented  and  put  in  force  more,  and  more  differ- 
ent modes  of  vexations  in  transportation,  than  probably  any  other  in 
the  world,  and  we  have  always  been  the  sufferers.  At  one  time  goods 
ordered  from  Eastern  points  for  the  interior  of  California  or  Nevada, 
on  the  lino  of  the  road,  had  to  be  hauled  to  San  Francisco  and  back 
to  destination,  to  swell  the  cost.  By  special  favor  and  on  payment  of 
the  whole  freight  both  ways,  the  interior  merchant  might  obtain  per- 
mission to  have  his  goods  delivered  as  they  passed  his  door.  At  an- 
other time  they  imposed  a  protective  duty  of  a  cent  a  pound  on  refined 
sugars  coming  here  from  the  east,  and,  as  believed,  for  a  consideration 
of  $100,000  paid  by  parties  interested.  The  charge  was  publicly 
made*  at  the  time  by  responsible  parties  and  never  denied.  Silence 
under  such  circumstances  amounted  to  an  admission.  At  another  they 
introduced  here  a  system  of  special  contracts  to  be  enforced  by  boy- 
cotting,! which  if  long  continued  would  infallibly  have  riven  our  com- 
munity into  two  hostile  factions.  This  infamous  and  doubtless  illegal 
special  contract  system  was  broken  up  by  the  construction  of  competing 
roads,  but  by  their  system  of  leases  they  undoubtedly  aim  to  revive  it. 
By  their  omnibus  lease  and  the  lease  of  the  Central  Pacific  road,  they 
have  united  practically  all  the  roads  in  the  State  under  the  manage- 
ment of  a  foreign  corporation  which  in  turn  is  under  the  control  of  a 
single  individual,  whose  greed  has  no  limits  and  who  avows  that  he 
has  no  other  or  higher  standard  of  right  than  his  own  opinion.  He 
has  never  made  public  his  general  code  of  morals,  if  he  has  any,  but  in 
letters  to  his  former  associate  he  exhibits  his  ideas  on  procuring  con- 
gressional legislation,  to  be  in  brief,  to  bribe  those  who  will  accept  and 
vilify  those  who  will  not. 

By  this  combination  they,  for  years,  simultaneously  withheld  pay- 
ment of  railroad  taxes,  unhinging  the  machinery  of  the  State  Govern- 
ment and  throwing  the  public  service  out  of  gear.  Public  schools 
closed,  supervisors,  legislators  and  executive  officers  bribed,  injunctions 
defied,  and  all  this  under  the  pretence  of  ascertaining  the  constitution- 
ality of  an  enactment  procured  by  themselves  and  passed  for  their 
benefit.  When  however  the  opportunity  of  a  decision  piesented  itself 
fleeing  from  the  ordeal.  A  history  of  all  these  offences  would  unduly 
expand  this  memorial,  and  they  must  be  passed  over  with  mere  men- 
tion. But  the  tax  litigation  was  so  grievous  an  injustice  to  the  State, 
and  the  dishonorable  and  collusive  manner  in  which  it  was  managed 
are  so  susceptible  of,  record  proof  that  we  give  it  briefly,  as  follows: 

Thirteen  Years'  Litigation  over  a  Scheme  of  Taxation  Enacted  at 

their  Own  Suggestion  and  for  their  Benefit— Collusive 

Suit— Impositions  Practiced  on  U.  S.  Courts — Etc. 

In  1879  a  provision  was  incorporated  in  our  State  constitution,  except- 
ing railroad  mortgage  bonds  from  the  general  rule  for  taxing  moneys 
invested  on  mortgage.     It  was  done  at  the  instance  of  the  railroad 

*  See  The  Nation  (N.  Y.),  December  sTTsSl,  pp.  452,  453.  ^ 

t  For  details,  see  The  Nation  (N.  Y.),  August  11,  1884,  pp.  113,  114. 
See  this  pamphlet,  pp.  25-29. 


[  18  ] 

people  themselves,  to  enable  them  to  sell  theii  Southern  Pacific  bonds, 
which,  if  subject  to  local  taxation  in  California,  would  obviously  have 
been  impossible.  The  measure  was  introduced  in  the  convention  by 
Mr.  Henry  Edgerton,  one  of  their  standing  counsel;  stated  by  him  to 
be  satisfactory  to  his  clients,  and  passed  without  amendment,  nem.  con. 
The  taxes  of  1880  having  been  levied  under  it,  the  companies  refused 
to  pay,  and  when  suits  were  brought  they  removed  them  to  the  Federal 
court,  claiming  that  the  exception  thus  enacted  at  their  own  instance 
was  in  conflict  with  the  14th  amendment  of  the  United  States  Consti- 
tution. They  affected  a  wish  to  waive  all  other  controversy  and  try  this 
constitutional  question  only.  To  secure  control  of  the  litigation,  they 
procured  a  collusive  suit  to  be  brought  by  the  Supervisors  of  San  Mateo 
County  (to  whom  they  loaned  the  amount  of  the  county  taxes,  on 
terms  evidently  corrupt  on  their  face)  in  which  the  facts  were  admitted 
by  demurrer,  in  a  shape  presenting  apparently  a  case  of  hardship  so 
great,  as  to  lead  the  Circuit  Court  of  the  United  States  to  decide  in 
their  favor.  The  false  coloring  given  to  the  facts  was  then  exposed  in 
the  press,  and  attracted  the  notice  of  the  Judges  of  the  Supreme  Court, 
who  when  the  case  came  before  tham,  declined  to  decide  it  in  the 
shape  presented,  and  desired  the  facts  developed  by  a  trial  and  proofs. 
Several  other  cases  were  then  tried  contradictorily  and  appealed,  all  of 
which  were  determined  on  other  grounds,  petty  quibbles  of  a  trifling 
character,  and  without  touching  the  great  Constitutional  question 
which  had  been  made  the  pretext  for  their  removal  from  the  speedier 
adjudication  of  the  State  Court.  Finally  years  having  gone  by;  and 
the  Supreme  Court  having  in  the  course  of  this  experience  become  ac- 
quainted with  the  whole  matter,  intimated  its  readiness  to  decide  the 
San  Mateo  County  case,  if  the  parties  would  resubmit  it.  But  as  may 
be  seen  from  the  opinions  of  the  court  below  and  the  argument  of  Mr. 
Roscoe  Conkling,  on  the  appeal,  their  main  reliance  in  the  support  of 
the  constitutional  objection  was  the  extreme  hardship  of  the  case,  as 
presented  on  demurrer,  and  that  mask  having  been  torn  off  by  the  de- 
velopment of  the  actual  facts,  a  decision  by  the  Supreme  Court  became 
the  last  thing  the  railroad  people  wanted.  The  adversary  which  had 
been  so  obliging  as  to  commence  and  prosecute  the  suit  with  the  money 
in  its  own  treasury,  and  lose  it,  was  equally  obliging  and  compliant  in 
the  matter  of  the  appeal;  the  San  Mateo  supervisors  promptly  tele- 
graphed to  Washington,  a  dismissal  of  the  writ  of  error,  which  the 
Supreme  Court  allowed.  Then  the  State  itself  brought  a  suit  wherein 
this  Constitutional  question  was  presented  alone.  It  also  went  to  the 
U.  S.  Supreme  Court  on  appeal;  but  again  they  frustrated  a  decision 
by  paying  the  tax  and  penalties  in  full,  just  in  time  to  oust  the  court 
of  jurisdiction,  by  destroying  the  subject  of  controversy.  There  is  no 
honesty  or  good  faith  in  them.  The  controversy  lasted  in  various 
forms  from  1880  to  1893,  when  the  Legislature  after  an  appeal  by 
joint  resolution  to  the  Supreme  Court  to  advance  the  pending  case, 
finally  from  mere  weariness  and  despairing  of  a  decision  on  the  merits 
passed  an  act  for  re-assessing  the  roads.  The  railroad  combination 
was  stronger  than  the  State;  they  now  ask  Congress  to  strengthen 
them  still  further  by  a  congressional  charter  with  undefined  (and 
therefore  unlimited)  powers  and  by  reserving  its  whole  policy  on 
Pacific  roads  for  a  century  to  come.     See, 

San  Mateo  County  vs.  Railroad  Company,  8  Sawyer's  C.  C.  Repts., 
228. 

San  Mateo  County  vs.  Railroad  Company,  116  U.  S.  Rep.,  136. 


[  19  ] 

San  Bernardino  County  vs.  Railroad  Company,  118  id.,  417. 

Santa  Clara  County  vs.  Railroad  Company,  id.  ib.,  394. 

S.  P.  R.  R.  Company  vs.  California,  id.  ib.,  109. 

Laws  of  California,  1893,  pp.  290  and  618. 

California  vs.  Railroad  Company,  149  U.  S.  Rep.,  308. 

Railroad  vs.  California,  162  U.  S.  Rep.,  91-167. 

California  vs.  Railroad,  105  Cal.,  576. 
The  detailed  history  of  this  episode  is  presented  for  the  information 
of  any  interested  in  an  appendix  hereto. 

Goaded  by  provocations  such  as  those  here  adverted  to, — and  they 
are  but  specimen  cases  to  which  similar  ones  are  of  constant  occur- 
rence,— the  people  of  California  have  long  looked  forward  to  the  ex- 
piration of  the  charter  of  the  Central  Pacific  road,  for  delivery  from 
this  body  of  iniquity,  at  least  for  their  children;  and  on  their  behalf 
we  respectfully  and  earnestly  entreat  Congress  not  to  pass  any  act 
which  will  continue  down  to  the  coming  generation  any  part  of  the 
offense,  outrage  and  oppression  which  we  have  endured  from  this 
iniquitous  combination  now  called  the  Southern  Pacific  Company. 
Deprived  of  the  management  and  power  to  continue  to  plunder  the 
Central  Pacific  road,  it  can  hardly  fail  to  go  to  pieces  and  relax  its 
grasp  on  the  vitals  of  our  State. 

It  may  almost  be  said  that  all  the  known  operations  of  the  Pacific 
railroad  management  in  this  State  are  saturated  with  fraud  and  dis- 
honesty which  recur  at  every  turn  of  their  procedings. 

Defrauding  the  Government  and  the  Public  by  Failure  to  Build 
the  Road  Contracted  for — The  Contracts  Entire. 

Take  for  example  the  construction  of  the  Southern  Pacific  road,  of 
which  we  have  spoken  above.  Its  map,  which  preceded  construction, 
showed  a  road  from  San  Francisco  southwards  through  the  Santa 
Clara  Valley,  to  a  point  where  it  was  to  commence  the  ascent  of  the 
pass  over  the  Coast  range  after  crossing,  which  chain  of  mountains  it 
was  to  extend  through  the  upper  San  Joaquin  Valley,  and  so  on  to 
the  State  line  on  the  Colorado  River.  To  aid  in  the  building  of  this 
road,  they  obtained  a  land  grant  of  over  ten  million  acres.  The  road 
was  designed  by  congress  to  be  a  competing  line  to  the  Mississippi 
river  and  to  connect  the  two  richest  valleys  of  the  Pacific  Coast,  and 
its  finest  Sea  port,  by  an  independent  and  continuous  line  of  rail  with 
the  waters  of  the  gulf  of  Mexico.  No  object  less  important  could  jus- 
tify the  extravagant  bounty  of  Congress,  and  evidently  from  the 
n  ture  of  the  object  and  the  means  adopted,  the  contract  was  an  en- 
ti^e  one.  The  whole  road  mentioned  was  to  be  built  for  the  whole 
subsidy.  Of  the  road  to  be  furnished  about  a  hundred  to  a  hundred 
and  fifty  miles  were  devoted  to  crossing  the  pass  in  the  coast  range 
and  thus  connecting  the  two  valleys  and  five  hundred  or  so  ran 
through  them,  over  a  soil  as  rich  as  possible  and  as  level  as  the  beds 
of  the  rivers  that  drained  them.  It  was  not  for  building  through  this 
valley  country  that  Congress  offered  its  bounty;  that  constituted  no 
part  of  the  inducement,  for  these  very  parties  had  already  built  a 
hundred  and  fifty  miles  of  road  up  the  San  Joaquin,  for  the  profit 
derived  from  building  it  at  $26,000  a  mile  and  bonding  it  for  $40,000 
and  they  were  going  further.  The  consideration  for  the  land  grant 
was  the  construction  of  the  road  over  the  mountain  pass  which  was 
highly  important  from  military  as  well  as  commercial  considerations. 


[  20  ]     - 

For  this  the  bounty  was  offered  and  the  difficult  character  of  the  work 
was  its  justification.  What  did  these  honest  gentlemen  do?  They 
built  the  valley  parts  of  the  road  on  both  sides  of  the  pass,  and  drew 
and  alienated  the  rich  land  fronting  on  it,  leaving  the  connecting  road 
from  Tres  Pinos  to  Alcalde  (some  100  miles)  unbuilt  and  it  so  remains 
to  day.  And  this  omission  was  no  accident  or  afterthought,  but  in- 
tended from  the  first;  Charles  Crocker  writes  to  Colton  his  partner, 
under  date  of  February  12th,  1875  (Colton  Transcript,  p.  1621),  and 
after  referring  to  a  suggestion  of  Colton's  to  "build  20  or  40  miles  on 
the  east  side  of  the  San  Benito  pass,  and  then  go  to  Congress  for  a 
change  of  line,"  says:  "  We  intend  to  build  from  Goshen  to  Los 
"  Gatos  close  up  to  and  into  the  eastern  base  of  the  mountain  to  a  coal 
"  mine  there;  and  we  have  never  intended  anything  else  and  no 
*'  portion  of  the  old  line  will  remain  unbuilt,  except  that  through  the 
"  mountains,  about  50  miles,"  etc.,  (it  is  in  fact  100  miles.)  *  *  *  * 
"  I  had  supposed  that  that  you  fully  understood  this;  Huntington 
does  understand  it^ 

This  being  so,  on  their  own  confession  made  as  early  as  1875,  what 
sort  of  faith  were  they  practising  when  they  solicited  and  accepted  from 
Congress  a  land  grant  of  over  ten  million  acres  of  rich  valley  land  as 
the  price  of  doing  this  work,  which  they  confess  they  never  intended  to 
do?  Is  this  the  sort  of  good  faith  Mr.  Huntington  is  using  in  treating 
with  Congress  to-day  ?  Are  his  present  representations  and  promises 
to  be  measured  by  it  ?  It  certainly  appears  to  satisfy  the  standard  of 
morals  he  proposes  for  his  conduct  in  his  sworn  examination  before 
the  Senate  committee  shown  in  Senator  Morgan's  report,  page  173. 

Out  of  one  wickedness  proverbially  springs  another,  and  "  bad  begun 
makes  strong  itself  by  ill."  This  truth  is  illustrated  in  the  present 
instance  by  an  imposition  on  the  financial  public  as  wicked  as  that 
practiced  on  the  Government.  In  building  the  Southern  Pacific  road 
mortgage  preceded  construction,  as  already  shown,  and  the  mortgage 
of  1875  covered  as  we  have  said  the  whole  road  in  this  State,  existing 
and  contemplated,  from  San  Francisco  to  the  Colorado  river. 

The  route  being  afterwards  opened  for  through  traffic,  the  holders  of 
Southern  Pacific  sixes  of  1875  placidly  repose  in  the  belief  that  their 
bonds  are  a  lien  on  the  continuous  traveled  road,  the  "through  line." 
This  is  a  mere  dream;  their  mortgage  is  on  two  distinct  roads:  the  one 
from  San  Francisco  to  San  Miguel,  the  other  from  Alcalde  to  Fort 
Yuma,  and  these  are  separated  from  one  another  by  the  mountain 
chain  above  mentioned,  the  pass  over  which  rises  to  1,934  feet  above 
tide,  to  build  over  which  will  cost  not  less  than  six  millions  !  Without 
such  connection  the  two  separate  roads  are  of  but  trifling  value  com- 
pared to  the  amount  of  the  mortgage  bonds,  and  the  latter  are  a  fraud 
on  the  public.   There  are  about  thirty-two  millions  of  them  outstanding ! 

In  nearly  similar  plight  are  the  bonds  of  the  same  concern  last 
issued,  called  "First  consolidated  fives  of  1893."  That  mortgage  is  a  first 
lien  on  fragmentary  roads  leading  practically  from  noplace  to  no  place, 
and  useless  without  other  roads  which  are  otherwise  mortgaged. 
These  are  practical  examples  of  Mr.  Huntington's  moral  standard. 

Again;  take  the  matter  of  terminals,  one  of  extreme  importance  to 
every  railroad,  and  specially  so  to  one  of  considerable  length.  The 
State,  twenty-eight  years  ago  (1868)  granted  sixty  acres  in  the  city  of 
San  Francisco,  to  the  two  Pacific  roads,  for  terminal  purposes;  and 
by  the  closing  of  streets  this  area  has  since  been  enlarged  to  a  hundred 
acres.     The  only  use  to  which  in  these  twenty-eight  years  they  have 

*"•     ..o.  JUNE  1939 


[21  1 

put  these  terminal  grounds,  is  to  mortgage  them  for  $16,000,000.  The 
real  terminus  in  San  Francisco  is  and  has  been  for  twenty  years  past, 
at  the  corner  of  Third  and  Townsend  streets,  on  a  block  of  ground 
825  X  550  feet,  belonging  to  the  Southern  Pacific  Company  {of  Ken- 
tucky). The  same  concern  owns  the  adjoining  blocks  used  for  the 
receipt  and  delivery  of  freight.  Not  a  square  foot  is  owned  by  either 
of  the  railroad  companies  that  use  it.  No  rent  is  found  charged  for 
these  premises,  in  their  reports  or  anything  to  indicate  that  they  do 
not  own  the  land,  a  fact  the  knowledge  of  which  might  alarm  bond 
holders.  But  whenever  the  mortgagees  foreclose  and  make  title  to  the 
railroad  entering  San  Francisco,  the  purchasers  will  succeed  only  to 
the  right  of  way  and  track,  along  the  public  streets  as  far  as  the  corner 
of  Fourth  and  Townsend  streets,  where  a  gate  on  the  line  of  the  South- 
ern Pacific  Company's  property  will  shut  them  out  of  the  terminal 
grounds  and  compel  them  to  discharge  their  freight  and  passengers  on 
the  public  street,  and  then  back  the  train  a  mile  or  two  to  the  nearest 
turn-table  to  enable  them  to  reverse  the  locomotive. 

These  are  specimens  of  the  way  things  are  managed  and  financed 
by  this  concern,  and  the  repeated  occurrence  of  the  like  has  caused 
those  who  know  it  best  to  doubt  whether  this  Southern  Pacific  Company 
of  Kentucky  has  ever  been  party  to  a  single  honest  transaction. 

The  Central  Pacific  can  be  Reorganized  on  Safe  and  Solvent  Bases, 
by  Calling  in  the  Snms  Due  it  from  Solvent  Debtors. 

The  exigencies  of  space  forbid  further  enlargement  on  this  branch 
of  the  subject.  Enough  has  been  said  to  show  the  need  of  a  thorough 
investigation  of  the  relations  of  the  Central  Pacific  Company  to  the 
parties  who  have  so  long  held  it  in  their  grasp,  and  the  enforcement 
of  its  just  claims  against  them.  This  done  it  will  be  found  that  so 
far  from  being  insolvent,  the  company  can  easily  be  reorganized  as  a 
great  trunk  line  to  the  Pacific  Coast,  competing  fairly  with  all  others 
and  on  the  basis  of  solvency  and  honest  management,  manifestly  to 
the  advantage  of  the  government  as  a  creditor  and  of  its  own  stock- 
holders. In  any  event  the  property,  if  it  has  to  be  sold,  can  be  then 
offered  with  knowledge  of  what  it  consists  of  and  what  its  earning 
capacity  is — things  at  present  absolutely  unknown  to  any  one  but  the 
Southern  Pacific  combination,  who  have  for  so  many  years  past 
managed  its  affairs  to  its  own  destruction.  It  must  not  be  forgotten 
to  extend  the  payment  or  refund  this  debt  as  proposed  is  practically 
to  sell  the  road  to  its  present  management  on  a  credit  of  a  hundred 
years,  taking  their  promise  to  pay  in  small  installments.  Congress 
does  not,  nor  does  any  of  its  members,  or  any  executive  ofiicer  of  the 
United  States,  or  indeed  anybody,  know  what  property  you  are  sell- 
ing. No  inventory  of  it  exists;  and  this  igaorance  shuts  off  all 
competitive  bidding.  It  is  now  fairly  established  and  undeniable  that 
for  numerous  important  purposes  the  Central  route  has  decided  advan- 
tages for  through  business  over  all  others.  All  the  products  of  this 
coast  destined  for  Eastern  points,  valuable  enough  to  pay  for  trans- 
portation by  rail,  give  it  the  preference  for  climatic  reasons.  For 
passenger  traffic  which  is  40  per  cent,  of  the  whole  business,*  it  has 

*  The  Central  Pacific  road  used  to  furnish  statements  of  details  of  through  and 
local  business,  and  of  the  amounts  derived  from  freight,  express,  passengers  and 
baggage,  but  since  the  year  1884  has  withheld  such  information.  From  the  printed 
report  of  December  31st,  1884,  we  learn  that 


[  22  ] 


the  call  over  all  the  others — the  Southern  (Sunset)  line  is,  in  fact^ 
disconthiued  during  summer.  It  does  not  admit  of  doubt  that  each 
of  the  great  trunk  lines  would  be  prompt  to  compete  for  the  Central 
Pacific  property,  if  offered  at  auction,  with  inventory.  Without  such 
it  would  not  probably  elicit  any  reasonable  bids,  for  however  large  or 
valuable  the  property,  no  purchaser  would  be  likely  to  count  on  re- 
ceiving from  the  tenants,  delivery  of  anything  beyond  the  road  itself, 
with  a  wretched  skeleton  equipment  incapable  of  doing  the  business. 

The  stockholders  of  the  road,  who  appear  to  have  at  last  awakened 
to  the  necessity  of  enquiry  into  the  wrongs  perpetrated  by  their  agents 
the  directors,  are  organizing  in  defence  of  their  property,  and  if  they 
have  an  opportunity,  will  scarcely  permit  the  trunk  lines  to  be  the 
only  competitors  at  such  sale.  As  indicated  by  their  published  pro- 
ceedings, they  are  making  intelligent  efforts  to  help  themselves  and 
resume  control  of  their  property;  they  will  probably  effect  a  reorgani- 
zation of  the  company.  The  people  of  California,  so  far  from  offering 
factious  opposition  to  a  reorganization  which  shall  preserve  the  central 
road  as  an  independent  and  competing  line  of  transportation,  man- 
aged by  its  actual  owners,  as  designed  by  Congress,  will  heartily 
welcome  it. 

We  believe  that  all  these  desired  ends  can  be  obtained  by  means  of 
a  foreclosure  of  the  Government  lien  on  the  road.  For  this  purpose, 
as  the  property  lies  in  several  different  States,  complete  jurisdiction 
should  be  conferred  on  some  one  of  the  Courts  of  the  United  States,  and 
the  ordinary  powers  of  the  Court  enlarged  so  as  to  enable  it  to  ascer- 
tain and  redress,  in  the  foreclosure  suit,  all  frauds  practised  on  the 
company  or  its  shareholders  by  the  management  or  by  their  tools  or 
confederates,  and  the  application  of  any  moneys  recovered  from  such 
parties  to  the  sinking  fund  in  the  United  States  Treasury.  We  there- 
fore respectfully  pray  Congress  to  instruct  its  appropriate  committees 
to  prepare  and  report  a  bill  to  that  effect. 


We  here  resume  briefly  the  grounds  of  our  opposition  to  the  pending 
measure  to  refund  the  debt  of  the  Central  Pacific  Railroad  Company 
to  the  United  States  (Senate  Bill  No.  2894,  H.  of  R.  Bill  No.  8189.) 

1.  The  recognition  and  confirmation  of  the  ninety-nine-year  lease 
to  the  Southern  Pacific  Company,  reverses  the  settled  policy  of  the 
United  States,  with  respect  to  these  Pacific  railroads,  as  established  by 
previous  acts  of  Congress,  and  promoted  by  grants  of  the  public  do- 
main of  many  million  acres.  It  substitutes  consolidation  and  monop- 
oly for  competition  and  freedom  of  trade;  it  gives  over  the  Central 
road  to  the  management  of  its  great  competitor  in  business,  depriving 
the  people  of  the  West  of  the  advantages  of  competition  in  transpor- 
tation for  which  they  have  paid  these  people  liberally,  and  Congress 
has  subsidized  them  munificently. 

The  proposal  is  quite  new;  has  never  been  publicly  discussed,  advo- 

the  total  earnings  of  the  year  were $22, 166,  106.00 

of  which  74  per  cent,  was  from  local  business $16,216,902.00 

and  26  per  cent,  from  through  business  or 5,949,204.00 

$22,166,106.00 
Of  the  through  earnings — 

The  receipts  from  passengers  and  baggage  were $2,383,066.00  or  40  per  cent. 

and  from  freight  and  express 3,566,096.00  or  60  per  cent. 

The  local  business  shows  the  same  proportions  between  freight  and  passengers. 


[23] 

cated  or  even  mentioned.  It  is  furtively  introduced  in  the  9th  and 
19th  sections  of  the  pending  bill  under  the  disguise  of  an  advantage 
to  the  United  States!  In  fact,  it  can  serve  no  purpose  but  to  confirm 
the  grasp  of  the  Southern  Pacific  Company  on  the  Central  road,  and 
enable  it  by  routing  freight  to  starve  the  Union  Pacific  into  obedience 
to  its  commands. 

2.  The  proposed  guaranty  of  the  Southern  Pacific  Company  is 
worthless;  a  mere  illusion.  That  company  owns  no  property  worth 
speaking  of  which  is  not  already  mortgaged  for  vastly  beyond  its  cost 
or  value. 

The  Southern  Pacific  Company  is  a  fraudulent  and  predacious  con- 
cern, got  up  to  perpetuate  the  control  of  dishonest  directors  of  the 
Central  Pacific  Railroad  Company  over  the  road  after  they  had  sold 
their  interest  in  it,  and  of  absorbing  the  profits  of  that  and  other  com- 
panies by  means  of  fraudulent  leases.  So  plain  was  this  at  its  origin 
that  its  original  charter  from  the  State  of  Kentucky  forbid  it  to  build  or 
operate  railroads  within  that  conunonwealth. 

3.  The  relief  asked  for  the  Central  Pacific  road  is  based  on  false 
suggestions  and  concealment  of  material  facts.  So  far  from  being  un- 
able to  provide  for  the  payment  of  its  debt  to  the  government,  it  i& 
possessed  of  assets  of  enormous  value — collectable  claims  against  its 
former  directors  for  moneys  and  credits  misappropriated  by  them^ 
amounting  to  many  millions.  These  should  be  called  in  and  applied 
to  the  sinking  fund.  Asking  indulgence  here  on  the  ground  of  pov- 
erty, its  stockholders  are  receiving  dividends  on  their  shares  to-day, 
and  have  the  promise  of  their  lessee  and  advocate  that  they  shall  be 
doubled  as  soon  as  the  bill  passes.  The  secrecy  of  this  dividend,  the 
fact  that  it  has  not  been  earned  by  the  road,  declared  by  the  directors, 
if  such  be  the  facts,  and  that  it  is  not  shown  on  the  books  of  the  com- 
pany, so  far  from  redeeming  it  from  the  imputation  of  fraud,  renders 
it  more  conspicuously  objectionable.  If  this  be  the  case,  it  is  evi- 
dently "hush  money"  paid  by  the  guilty  parties  to  secure  Congres- 
sional confirmation  of  the  ninety-nine-year  lease;  and  the  sum  agreed 
to  be  paid  for  it*  (which  is  essentially  a  bribe  to  silence  opposition) 
bespeaks  the  nefariousness  of  the  transaction  and  the  value  attached 
to  a  condonation  of  it. 

4.  By  passing  this  bill.  Congress  will  prolong  the  life  of  this  rail- 
road company  for  some  seventy  years  beyond  the  limit  fixed  for  sit 
existence  by  the  law  of  the  State  that  created  it.  To  do  this  without  the 
consent  of  against  the  unanimous  protest  of  the  State,  would  be  not 
only  an  act  of  gross  discourtesy  to  the  State  of  California,  but  a  grave 
injury  and  outrage  to  her  people,  who  have  for  the  past  twenty-eight 
years  suffered  at  the  hands  of  these  managers  outrage  and  wrong  past 
all  endurance,  rendering  it  justly  odious  and  detested  of  all  men. 

5.  The  management  of  the  road  has  been  continuous  from  the 
beginning;  they  have  shown  themselves  by  their  published  corres- 
pondence among  themselves  to  be  corruptionists  of  the  worst  kind. 

6.  They  have  broken  faith  with  Congress,  by  soliciting  and  accept- 
ing a  land  grant  as  the  consideration  for  building  the  whole  S.  P. 
road  a  hundred  or  more  miles  of  which  was  over  a  mountain  pass.  They 

*  One  per  cent.  101*  1895  (paid) $      672,000 

Same  for  1896  (paid) 672,000 

Two  per  cent,  each  for  1897  and  1898 2,688,000 

$4,032,000 


1   24  ] 

have  taken  and  appropriated  the  valuable  part  of  the  grant,  and  left 
the  difficult  mountain  part  of  the  road  unbuilt.  Their  correspondence 
shows  the  breach  of  faith  was  intended  from  the  beginning. 

7.  They  have  broken  faith  with  the  public  in  the  same  way  as 
with  the  Government;  borrowed  thirty-two  million  dollars  on  the 
undertaking  to  build  a  continuous  line  of  rail  from  San  Francisco  to 
the  Colorado  river,  and  left  a  mountain  gap  of  a  hundred  miles  of  it 
unbuilt,  and  have  even  renounced  the  building  of  it. 

8.  Similar  frauds  in  the  matter  of  terminals.    They  are  unreliable. 

9.  Refunding  the  Central  Pacific  debt  is  w^holly  unnecessary.  The 
company  can  be  reorganized  on  the  basis  of  solvency  if  Congress  will 
but  authorize  a  receiver  appointed  in  foreclosure  to  avoid  all  fraudu- 
lent conveyances;  get  in  the  assets  of  the  company  and  apply  such  as 
are  not  needed  for  transportation  purposes  to  the  sinking  fund  in  the 
U.  S.  Treasury. 

10.  As  seventy-five  per  cent,  of  the  revenues  of  the  Central  Pacific 
road  are  derived  from  local  traffic,  and  from  fifteen  to  eighteen  per 
cent,  more  from  California  products  seeking  a  market  abroad,  and 
goods  brought  from  abroad  for  consumption  for  sale  here,  on  all  of 
which  we  pay  the  freight,  the  people  of  California  feel  that  all  of 
the  plunder  which  its  former  directors  are  permitted  by  Congress  to 
retain  will  be  saddled  on  them.  There  is  little  doubt  that  as  much  as 
from  twenty-five  to  thirty  millions  can  be  recovered  from  the  sinking 
fund  from  Huntington  and  the  Crocker  estate;  why  should  they  be 
abandoned  without  an  effort  and  saddled  on  the  people  of  this  State? 

San  Francisco,  Cal.,  December  26,  1896. 

On  behalf  of  the  people  of  California. 

CHAS.   ASHTON.  GEO.  K.  FITCH,  P.  K.  MARTIN, 

JOSEPH  BRITTON,  J.  RICHARD  FREUD,  A.  MILLER, 

W.  M.  BUNKER,  GEO.  T.  GADEN,  JAS.  MADISON, 

J.  H.  BARRY,  ADAM  GRANT,  W.  L.  MERRY, 

E.  S.  BARNEY,  H.  E.  HIGHTON,  G.  W.  MONTIETH, 

J.  M.  BASSETT,  N.   C.  HAWKS,  MAX.  POPPER, 

T.  V.  CATOR,  W.  W.  THOMPSON,  E.  A.  PHELPS, 

N.  P.  COLE,  I.  J.  TRUMAN,  TAYLOR  ROGERS, 

DR.  FRANK  CORNWALL,  .7.  C.  JENS,  G.  M.  REYNOLDS, 

W.  M.  COWARD,  WM.  JOHNS,  C.  A.  SUMNER, 

H.  Y.  COWELL,  J.  C.  JORDAN,  J.  E.  SCOTT, 

H.  L.   DODGE,  J.  LEGGETT,  C.  M.  SHORTRIDGE, 

J.  T.  DOYLE,  OSCAR  LEWIS,  F.  J.  SULLIVAN, 

HON.  J.  L.  DAVIE,  STEWART  MENZIES,  L,  STRAUSS, 

B.  F.  DUNHAM,  C.  A.  MURDOCK,  I.  UPHAM, 

L.  R.  ELLERT,  M.  McGLYNN,  HON.  ADOLPH  SUTRO. 

The   Committee  of  Fifty  appointed  by  the  monster  meeting  at  Metro- 
politan Temple,  December  7th,  1895. 

ADOLPH  SUTRO,  Mayor  of  San  Francisco,  Chairman. 

TAYLOR  ROGERS,  Secretary, 

SUB-COMMITTEE  ON  MEMORIAL. 

JOHN  A.  STANLEY,  JAS.  D.  PHELAN, 

THOS.  F.  BARRY,  E.  W.  McKINSTRY, 

JAS.  M.  BASSETT,  TAYLOR  ROGERS, 

JOHN  T.  DOYLE,  Chairman. 


I  25  ] 


EXTRACTS  FROM  "THE  NATION,"  REFERRED  TO  ABOYE. 


{The  Nation,  August  11,  1881,  pp.  113,  114.) 

OVERLAND   RAILROAD   RATES. 

To  THE  Editor  of  The  Nation  : 

Sir  :  Two  paragraphs  in  the  Nation  of  July  14  (No.  837,  pp.  22,  23), 
indicate  that  you  are  but  imperfectly  informed  as  to  abuses  on  the 
overland  railroads.  As  you  appear  willing  to  aid  in  remedying  them 
I  give  you  some  of  the  facts.  The  system  of  unlawful  freight  discrim- 
inations alluded  to  has  not  been  recently  revived;  it  has  never  for  a 
moment  been  suspended  since  its  formal  introduction  in  the  summer 
of  1878,  but  has  been  constantly  enlarged  and  extended  down  to  the 
present  time,  when  it  is  more  stringent  and  oppressive  than  ever  before. 
The  modus  operandi  is  this:  By  arrangement  between  the  Central  and 
Union  Pacific  Railroad  Companies  the  rates  of  Western-bound  freights 
are  fixed  by  the  Union,  and  those  of  Eastern-bound  by  the  Central 
Company.  This  arrangement  is  supposed  to  be  nominal  only;  a  sort 
of  legal  fiction  to  enable  each  concern  to  refer  complaining  parties  to  a 
"  Mr.  Jorkins,"  two  thousand  miles  off;  but  that  is  the  form  of  it. 
The  Union  Pacific  Company  has  a  printed  classification  of  merchan- 
dise, and  printed  rates  of  freight  for  each  class  from  New  York  and 
other  Eastern  points  to  San  Francisco,  ranging  from  $6  per  100  lbs. 
for  first-class  to  $1.50  per  100  lbs.  for  Class  D.  These  are  declared  to 
be  the  regular  rates.  But  the  Company  enters  into  contracts  with  the 
merchants  here  to  carry  for  them  at  special  rates,  much  reduced  from 
these  regular  ones,  on  condition  that  the  merchant  shall  import  all  his 
goods  by  their  line;  not  only  such  as  are  usually  sent  by  rail  or  via 
the  Isthmus,  but  also  such  as  have  heretofore,  and  naturally,  come  by 
sea  around  Cape  Horn;  and  they  make  him  bind  himself  to  ship  by 
their  road,  and  by  such  connecting  roads  as  their  general  freight-agent 
shall,  from  time  to  time,  designate,  all  goods  purchased  by  or  for  him, 
or  shipped  by  or  consigned  to  him,  by  his  procurement,  directly  or  in- 
directly, or  with  his  knowledge  and  assent.  The  contracts  declare 
that  their  object  is  to  give  to  the  Union  Pacific  Company  the  transpor- 
tation of  all  goods  bought,  sold,  dealt  in,  or  handled  by  the  merchant; 
and  any  act  of  his  tending  to  defeat  this  object  constitutes  a  breach, 
so  that  he  cannot  even  buy  in  open  market  goods  imported  otherwise 
than  by  rail;  and  this  rule  is  enforced.  They  also  provide  that  these 
special  rates  are  for  his  own  exclusive  benefit,  and  he  must  not  allow 
the  use  of  his  nome  or  shipping  marks  by  any  one  else.  The  freight 
must  all  be  forwarded  to  Omaha  by  such  carriers  as  are  designated  by 
the  Union  Pacific  Railroad  Company.  They  reserve  the  option  (which 
is  always  exercised)  of  way-billing  the  goods  and  collecting  freights 
according  to  the  printed  rates,  agreeing  to  return  the  difference,  on 
presentation  of  vouchers  to  the  Central  Pacific  freight-agent  at  San 
Francisco,  after  the  lapse  of  a  reasonable  time — say  thirty  days — for 
transmission,  verification,  etc. 

All  our  leading  merchants  have  been  forced  to  enter  into  contracts 
of  this  description;  the  man  who  attempts  to  import  his  coarse  goods 
by  sea,  relying  on  the  rail  for  such  as  need  more  rapid  transportation, 


[26  ] 

has  to  pay  such  rates  on  the  latter  that  he  cannot  compete  with  his 
neighbors.  He  cannot  even  buy  his  coarse  goods  in  open  market  here 
if  they  shall  have  come  round  the  Horn,  for  that  would  defeat  the 
^^  bought,  soldi  dealt  in,  or  handled  hy^^  clause.  Such  goods  and  their 
importers  are  tabooed  and  "  boycotted,"  and  the  merchant  who  touches 
them  without  leave  of  the  railroad  company  can  have  no  freight  trans- 
ported overland  except  at  ruinous  rates;  even  at  such  he  is  liable  to 
casual  delays,  difficulties,  and  obstructions  which,  being  unable  to  ac- 
count for,  his  unregenerate  nature  attributes  to  malicious  design. 

The  result  is  that  ships  obtain  little  or  no  freights  from  Eastern 
ports  here;  they  have  to  come  here  in  ballast,  or  half  full,  to  load  wheat 
for  Europe,  and  our  people  are  compelled  to  pay  on  their  produce  sent 
abroad  a  freight  to  cover  the  expense  of  the  round  trip.  The  standing 
forced  loan  exacted  from  our  merchants,  without  interest,  by  collecting 
and  after  thirty  days  repaying  the  difference  between  printed  and  con- 
tract rates,  may  amount  to  half  a  million  dollars;  it  operates  oppress- 
ively to  individuals,  but  to  the  community  is  of  minor  importance. 
But  the  tax  levied  on  our  exports  in  the  form  of  enhanced  freights  to 
Europe  is  a  monstrous  and  shocking  wrong.  In  the  absence  of  full 
statistics  it  is  impossible  to  compute  its  amount,  but  it  is  probably 
equivalent  to  about  four  dollars  per  ton  on  the  exportable  crop  of  the 
State.  San  Francisco,  under  this  nefarious  system,  has  degenerated 
from  the  rank  and  position  of  a  maritime  city  open  to  the  commerce 
of  the  world  to  that  of  an  interior  town  some  two  thousand  miles  west 
of  St.  Louis,  approachable  only  over  deserts  and  mountains. 

With  these  facts  before  you,  which  are  known  to  every  well-informed 
man  in  San  Francisco  (except,  of  course,  the  Railroad  Commissioners), 
you  can  understand  why  the  tide  of  prosperity  which  has  spread  over 
the  rest  of  the  Union  during  the  last  few  years  has  never  yet  reached 
California,  why  all  business  has  been  depressed  and  real  estate  has 
been  steadily  falling  in  value  ever  since  the  overland  roailroad  was 
completed.  Perhaps,  too,  you  will  regard  with  more  leniency  the  mis- 
taken hostility  to  corporations  (especially  railroads)  which  has  found 
expression  in  some  of  our  recent  legislation.  Grant  that  it  is  unphilo- 
sophical,  ill-directed,  stupid,  and  in  some  respects  unjust — that  was 
not  its  intention;  but  people  who  have  been  so  long  and  sorely 
oppressed  as  ours  have  been  by  the  present  monopoly  cannot  always 
reason  cooly  or  justly  as  to  the  remedy,  and  in  their  anger  seize  any 
weapon  at  hand  careless  whom  else  they  may  hurt,  provided  they  can 
inflict  a  blow  on  their  chief  enemy. 

You  suggest  an  appeal  to  the  courts — at  least,  so  I  understand  your 
w^ords  "proceed  against  with  all  vigor;"  but  who  can  proceed  against 
them,  and  how?  I  defy  any  lawyer  to  point  out  a  remedy,  under 
existing  laws,  of  the  slightest  value  to  the  individual  aggrieved.  Our 
Railroad  Commissioners,' if  so  disposed,  could  doubtless  do  much  on 
behalf  of  the  public,  if  not  to  break  up,  at  least  to  expose  the  wrong. 
But  the  eyes  of  justice,  you  know,  are  bandaged,  and  they  can  only 
know  what  is  officially  communicated  to  them  and  duly  proved  by 
witnesses,  and  their  governing  majority  has  just  completed  a  set  of 
rules  for  proceedings  before  them  well  calculated  to  aid  them  in  re- 
maining ignorant  of  all  public  abuses  of  the  kind.  No  individual 
merchant  dare  sue,  complain,  or  even  let  it  be  known  that  he  is  dis- 
satisfied, lest  he  should  be  straightway  put  at  a  ruinous  disadvantage 
with  his  competitors  in  trade.  His  business  would  be  broken  up  be- 
fore he  could  get  his  first  case  set  for  trial,  and  his  family  might  starve 


BANCROFT  LfBRARY 
SUTRO.  JUNE  1939 

[   2^   ] 

while  he  was  awaiting  the  result  of  new  trials  and  appeals.  The  way 
of  a  man  who  enters  into  litigation  with  a  company  that  keeps  all  the 
leading  law-firms  under  standing  retainers,  most  of  the  leading  jour- 
nals by  some  means  quieted,  and  which  finds  in  legislators,  railroad 
commissioners,  and  auditors  of  railroad  accounts  its  serviceable 
friends,  is  too  hard  to  be  voluntarily  pursued  by  any  man  in  business. 

There  is  but  one  remedy  for  this  monster  grievance  which  oppresses 
the  whole  Pacific  Coast.  The  power  so  to  oppose  must  be  absolutely 
taken  from  the  companies.  For  this  purpose  it  is  not  necessary  to 
establish  rates  of  freight  by  law;  but  the  law  should  lay  down  a  rule 
for  their  establishment  by  the  companies,  and,  once  established,  they 
should  be  made  public,  and  no  deviation  permitted.  The  organiza- 
tion of  the  roads  in  all  their  departments  should  be  kept  under  con- 
stant and  vigilant  supervision  by  government,  and  any  violation  of 
law  by  railroad  officials  should  be  punished  as  a  public  offence. 
Actions  for  damages  and  like  private  remedies  are  wholly  inefficient. 
Congress  has  ample  power  to  remedy  all  evils  in  the  overland  system 
of  transportation,  for  it  is  all  built  on  Congressional  legislation;  and 
its  just  control  of  that  system,  judiciously  exercised,  could  not  fail  to 
be  attended  with  most  beneficial  results  in  the  whole  system  of  con- 
necting roads. 

The  first  thing  needed  is  a  Congressional  committee  of  investiga- 
tion, with  ample  powers  and  means  to  examine  thoroughly  into  all 
existing  abuses  in  the  management  of  the  Union  and  Central  Pacific 
roads,  and  their  leased  and  associated  lines.  The  Nation  cannot  do  a 
better  public  service  than  by  aiding  and  enforcing  through  its  col- 
umns the  demand  for  such  an  investigation. 

San  Francisco,  July  28,  1881.  John  T.  Doyle. 


{The  Nation,  December  8,  1881.) 

OVERLAND  RAILROAD  RATES. 

To  THE  Editor  of  the  Nation  : 

Sir:  Since  the  publication  of  my  letter  on  overland  railroad  rates 
in  the  Nation  of  August  11,  Mr.  Charles  F.  Adams,  Jr.,  has  called  my 
attention  to  the  origin  of  the  system  of  special  freight  contracts  and 
unlawful  discrimination  in  freight  charges,  as  set  forth  in  the  report 
of  the  Government  Directors  of  the  Union  Pacific  Railroad  for  the 
year  ending  June  30,  1878.     I  quote  from  page  15  of  the  document: 

"In  the  month  of  July  last,  a  sudden  announcement  was  made  that  the  tariffs  on 
through-freighting  business  over  the  Pacific  roads  had  been  altered,  and  that,  while 
the  classification  of  certain  articles  had  been  changed,  the  rates  upon  others  had  been 
advanced  from  50  to  100  per  cent.  The  reason  of  this  movement,  which  naturally 
excited  surprise  as  well  as  indignation  among  those  affected  by  it,  was  not  at  first 
apparent.  It  was,  however,  soon  learned.  It  was  purely  strategic.  The  company 
did  not  really  propose  to  raise  its  tariff  rates;  on  the  contrary,  it  was  ready  to  slightly 
reduce  them;  but  it  did  propose  to  take  full  advantage  of  its  position  to  secure  a,s 
much  as  possible  of  the  transcontinental  business.  As  a  first  step  toward  this,  it 
practically  did  away  with  its  open  tariff,  by  the  very  simple  process  referred  to. 
Under  the  open  tariff,  at  the  old  rates,  the  larger  business  firms  dealing  between  the 
two  coasts  had  a  choice  of  routes— that  by  water  and  that  by  rail.  They,  in  practice, 
availed  themselves  of  this  option  by  sending  their  coarser  freights,  or  those  in  regard 
to  which  time  in  delivery  was  immaterial,  by  water,  at  the  lower  rates;  while  the 
more  costly  wares,  or  those  requiring  immediate  delivery,  were  forwarded  overland. 
The  object  of  the  Union  Pacific  was  to  put  a  stop  to  this  practice.  This  they  did  by 
largely  raising  their  freights,  which  put  an  effectual  stop  to  shipments  under  the 
open  tariff,  while,  at  the  same  time,  they  offered  to  all  the  large  firms  which  would 
contract  to  make  their  shipments  wholly  by  land,  special  rates  at  a  reduction  even 


[  28] 

from  tbose  in  force  before  the  change.  It  was  thus  a  distinct  step  backward;  for  it 
amounted  to  the  abondonment  of  a  published  and  open  tariff  in  favor  of  a  system  of 
private  special  contracts. 

'•  This  move  was,  therefore,  not  only  one  of  great  importance,  but  it  was  open  to 
serious  objections.  It  was  made,  not  by  a  petty  Jocal  road,  nor  by  a  competing  trunk 
line,  but  by  a  great,  subsidized,  continental  thoroughfare.  As  such,  it  might  natur- 
ally be  inferred  that  it  was  made  only  after  ample  consideration,  and  with  the  author- 
ity of  the  full  board  of  directors.  It  is,  however,  a  fact  singularly  illustrative  of  the 
absence  of  that  sence  of  public  responsibility  in  which  the  policy  of  the  Union  Pacific 
is  now  shaped,  that  this  measure,  which  practically  put  in  irons  the  transcontinental 
business  of  the  country,  was  devised  by  two  freight  agents,  was  never,  before  being 
publicly  announced,  submitted  for  consideration  even  to  the  executive  committee  of 
the  board  of  directors,  much  less  to  the  full  board,  and  was  finally  put  in  force,  to  the 
utter  surprise  of  the  public,  on  the  verbal  authority,  so  far  as  can  be  ascertained,  of 
the  president  and  a  single  director. 

"It  is  unnecessary  to  comment  on  such  a  method  of  corporate  management.  It 
speaks  for  itself.  Meanwhile,  so  far  as  the  measure  is  concerned,  the  objections  to 
it  are  apparent.  The  through-business  over  the  Union  Pacific  is  mainly  done  by 
large  houses.  This  is  natural  enough,  for  such  houses  can,  of  course,  do  it  most 
cheaply.  The  measure  under  discussion,  however,  made  it  impossible  that  this  busi- 
ness should  be  done  by  any  but  the  large  houses.  They  have  special  contracts  cover- 
ing it  at  less  than  the  published  tariff  rates.  More  than  this,  it  locks  up,  in  secrecy, 
transactions  which  more  than  all  others  should  be  public.  The  special  contracts  may 
be  equal  as  between  shippers,  or  they  may  not.  The  directors  have  every  reason  to 
believe  that  they  are,  but  they  none  the  less  are  lacking  in  that  element  of  publicity 
which  in  such  matters  will  always  remain  the  one  real  safeguard  against  dis- 
crimination." 

The  contracts  here  referred  to  and  so  justly  condemned  did  not  con- 
tain the  "boycotting"  clause  quoted  in  my  former  letter;  they  merely 
bound  the  merchant  to  transport  all  his  freight  by  rail — viz:  "all 
goods  purchased  by  or  for,  and  shipped  or  consigned  to  him  by  his 
procurement,  directly  or  indirectly,  or  with  his  previous  knowledge  or 
consent;"  he  was  still  free  to  deal  in  goods  which  had  reached  here  by 
sea,  though  he  could  not  import  them  so  himself.  Next  year  or  the 
year  following,  the  "bought,  sold,  dealt  in,  or  handled  by"  clause  was 
introduced,  which  "boycotted"  all  goods  not  imported  by  rail,  so  far  as 
the  railroad  companies'  customers  were  concerned.  They  were  forbid- 
den to  buy,  sell,  deal  in,  or  handle  them.  Last  January  the  railroad 
companies  gave  another  turn  to  the  screw,  and  introduced  a  clause 
which  boycotts  not  only  the  goods,  but  the  importers.  The  merchant 
who  holds  a  freight  contract  with  this  company  is  ''^firtnly  bound'''*  not 
to  sell  or  deliver  goods  to  anyone  who  is  in  the  habit  of  importing  other- 
wise than  by  rail.  To  show  that  there  is  no  mistake  about  this 
humilating  exaction,  I  enclose  on  a  separate  slip  the  text  of  the 
covenant,  as  well  as  that  of  the  corresponding  clause  in  the  contracts 
of  the  preceding  year.  They  are  clipped  from  the  columns  of  the  Gro- 
cer and  Country  Merchant,  a  local  trade  journal  which  published  them, 
with  a  vigorous  protest,  at  the  time  they  were  forced  upon  our  merchants. 
The  space  of  the  Nation  is  too  valuable  to  insert  them  in  extenso  here; 
but  let  them  go  into  your  advertising  columns  with  a  note  of  reference. 
They  divide  the  importing  merchants  of  the  whole  Pacific  Coast  into 
two  classes — viz.:  those  who  bind  themselves  to  import  exclusively  by 
rail  and  those  who  refuse  to  do  so;  these  two  classes  are  forbidden  by  the 
railroad  company  to  have  any  dealings  with  one  another. 

I  make  no  comment  on  this  proceeding,  for  I  have  no  language 
equal  to  it;  but  I  hopu  that  the  Nation  will  do  so,  for  I  have  reason 
to  believe  that  it  will  not  be  without  effect.  I  pass  to  another  item  of 
railroad  management. 

Sugar  refining  was  introduced  here  in  1855,  and  soon  grew  to  be  a 
large  and  important  industry.  Even  paying  duty  on  raw  stocks  im- 
ported from  Manila,  it  was  found  possible  to  manufacture  here  at  a 


[  29  ] 

profit,  and  compete  with  Eastern  goods  to  the  extent  of  the  refined 
sugars  and  syrups  consumed  on  this  coast.  The  price  was,  of  course, 
regdlated  by  the  cost  of  laying  down  New  York  sugars  here.  The 
Hawaiian  treaty  removed  the  duty  from  our  raw  stocks,  and  gave  our 
refiners  a  clear  advantage  of  two  and  a  half  cents  per  pound  over 
their  Eastern  rivals.  Still,  Eastern  crushed  sugar  had  a  slight  pref- 
erence, and  could  always  be  found  in  our  market  and  at  substantially 
the  same  price  as  domestic.  Last  January  all  this  suddenly  changed, 
and  Eastern  sugars  disappeared  from  the  market.  The  reason  as- 
signed was  that  the  railroad  companies  had  raised  the  freight  on 
refined  sugar  from  one  cent  per  pound  to  two — a  rate  which  forbade 
importations.  The  reader  may  be  surprised  that  they  should  thus 
impose  a  protective  duty  (for  that  is  evidently  what  it  is)  so  high  as 
to  cut  off  their  own  revenue  from  the  trade;  but,  though  strong 
protectionists,  they  are  not  such  fools  as  that.  It  now  comes  out 
that  they  received  a  full  consideration  for  their  action.  The  Chron- 
icle of  this  city  has  brought  out  the  fact,  and  it  is  uncontradicted, 
that  the  advance  in  freight  is  the  result  of  a  bargain  with  the 
principal  refiner  here,  thinly  disguised  under  the  form  of  a  trans- 
portation contract,*  whereby,  for  a  consideration  of  1100,000,  they 
consent  to  impose  this  prohibitory  duty  on  Eastern  sugars  for  the  cur- 
rent year.  The  Chronicle  publishes  statistics  of  sugar  imported  from 
the  islands,  etc.,  to  show  that  through  the  operation  of  the  treaty  the 
Government  loses  about  two  million  dollars  per  annum,  while  by  the 
action  of  the  railroad  companies  the  people  of  this  coast  are  mulcted 
about  eight  hundred  thousand  more  in  the  enhanced  cost  of  sugar. 
Its  attack  is  mainly  on  the  treaty  and  the  refiner.  Papers  in  the  op- 
posite interest  defend  the  action  of  the  railroad  companies  by  the  usual 
protectionist  arguments,  encouragement  of  home  industry,  etc.  The 
whole  public  is,  however,  as  it  seems  to  me,  more  interested  in  a  ques- 
tion back  of  this,  and  which  I  venture  to  think  lies  at  the  bottom  of 
the  whole  railroad  problem — viz :  IV/iaf  right  has  any  railroad  company 
to  impose  a  protective  duty  on  sugar  or  any  other  commodity  imported  from 
one  State  into  another  ?  And  what  is  the  system  of  classification  adopt- 
ed by  all  our  railroad  companies  as  the  basis  of  freight  charges,  but  a 
system  of  protective  duties  under  another  name  ?  The  overland  com- 
panies, by  their  scandalous  imposition  of  this  duty  on  SiUgar,  have 
brought  this  question  squarely  to  the  front,  and  incidentally  suggested 
the  true  remedy  for  such  abuses.  The  latter,  if  you  will  permit,  I 
should  like  to  discuss  hereafter. 

John  T.  Doyle. 
San  Francisco,  November  23d,  1881. 


*The  transaction  is  alleged  to  be  in  the  shape  of  a  contract  to  transport  for  the 
refiner  5,000,000  lbs.  of  sugar  at  two  cents  per  lb.  Of  course  they  could  not  charge  any- 
dealer  a  less  rate  than  that  voluntarily  paid  by  so  large  a  customer,  who  pays  his 
freight  and  is  not  at  all  particular  as  to  the  transportation  of  the  goods  ! 


SUTRO.  JUNE  1939 


